Is Avadel Pharmaceuticals (NASDAQ:AVDL) Using Debt In A Risky Way?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Avadel Pharmaceuticals plc (NASDAQ:AVDL) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Avadel Pharmaceuticals's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Avadel Pharmaceuticals had US$37.5m of debt, an increase on US$35.4m, over one year. But it also has US$66.5m in cash to offset that, meaning it has US$29.0m net cash.

A Look At Avadel Pharmaceuticals' Liabilities

Zooming in on the latest balance sheet data, we can see that Avadel Pharmaceuticals had liabilities of US$50.9m due within 12 months and liabilities of US$42.9m due beyond that. On the other hand, it had cash of US$66.5m and US$41.6m worth of receivables due within a year. So it actually has US$14.2m more liquid assets than total liabilities.

This state of affairs indicates that Avadel Pharmaceuticals' 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$940.3m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Avadel Pharmaceuticals has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Avadel Pharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

See our latest analysis for Avadel Pharmaceuticals

In the last year Avadel Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 253%, to US$194m. That's virtually the hole-in-one of revenue growth!

So How Risky Is Avadel Pharmaceuticals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Avadel Pharmaceuticals had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$25m of cash and made a loss of US$26m. But the saving grace is the US$29.0m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. The good news for shareholders is that Avadel Pharmaceuticals has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. For riskier companies like Avadel Pharmaceuticals I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.