David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Selecta Biosciences, Inc. (NASDAQ:SELB) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Selecta Biosciences

The chart below, which you can click on for greater detail, shows that Selecta Biosciences had US$25.6m in debt in December 2021; about the same as the year before. But it also has US$128.1m in cash to offset that, meaning it has US$102.4m net cash.

We can see from the most recent balance sheet that Selecta Biosciences had liabilities of US$72.3m falling due within a year, and liabilities of US$65.1m due beyond that. Offsetting this, it had US$128.1m in cash and US$9.91m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Selecta Biosciences' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$167.8m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Selecta Biosciences has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Selecta Biosciences can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Selecta Biosciences wasn't profitable at an EBIT level, but managed to grow its revenue by 413%, to US$85m. That's virtually the hole-in-one of revenue growth!

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Selecta Biosciences had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$61m and booked a US$26m accounting loss. But at least it has US$102.4m on the balance sheet to spend on growth, near-term. Importantly, Selecta Biosciences's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 4 warning signs we've spotted with Selecta Biosciences .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis. Find out more about our editorial guidelines and team.

Simply Wall Street Pty Ltd (ACN 600 056 611), is a Corporate Authorised Representative (Authorised Representative Number: 467183) of Sanlam Private Wealth Pty Ltd (AFSL No. 337927). Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situation or needs. You should not rely on any advice and/or information contained in this website and before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice. Please read our Financial Services Guide before deciding whether to obtain financial services from us.