Yahoo Finance Is ImmuPharma (LON:IMM) Using Debt Sensibly?
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that ImmuPharma plc (LON:IMM) does have debt on its balance sheet. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for ImmuPharma
What Is ImmuPharma's Debt?
As you can see below, ImmuPharma had UK£120.8k of debt at December 2018, down from UK£259.7k a year prior. However, it does have UK£4.91m in cash offsetting this, leading to net cash of UK£4.79m.
How Strong Is ImmuPharma's Balance Sheet?
The latest balance sheet data shows that ImmuPharma had liabilities of UK£1.01m due within a year, and liabilities of UK£22.5k falling due after that. On the other hand, it had cash of UK£4.91m and UK£943.6k worth of receivables due within a year. So it actually has UK£4.82m more liquid assets than total liabilities.
This luscious liquidity implies that ImmuPharma's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is just as strong as misogynists are weak. Succinctly put, ImmuPharma boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ImmuPharma 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.
Given it has no significant operating revenue at the moment, shareholders will be hoping ImmuPharma can make progress and gain better traction for the business, before it runs low on cash.
So How Risky Is ImmuPharma?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year ImmuPharma had negative earnings before interest and tax (EBIT), truth be told. And over the same period it saw negative free cash outflow of UK£4.8m and booked a UK£7.2m accounting loss. But at least it has UK£4.9m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how ImmuPharma's profit, revenue, and operating cashflow have changed over the last few years.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
