Is Immutep (ASX:IMM) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Immutep Limited (ASX:IMM) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Immutep

How Much Debt Does Immutep Carry?

As you can see below, Immutep had AU$2.72m of debt at December 2021, down from AU$9.45m a year prior. However, it does have AU$99.7m in cash offsetting this, leading to net cash of AU$96.9m.

A Look At Immutep's Liabilities

According to the last reported balance sheet, Immutep had liabilities of AU$7.85m due within 12 months, and liabilities of AU$3.47m due beyond 12 months. Offsetting this, it had AU$99.7m in cash and AU$6.97m in receivables that were due within 12 months. So it can boast AU$95.3m more liquid assets than total liabilities.

This excess liquidity suggests that Immutep is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Immutep boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Immutep'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.

Over 12 months, Immutep made a loss at the EBIT level, and saw its revenue drop to AU$3.7m, which is a fall of 41%. To be frank that doesn't bode well.

So How Risky Is Immutep?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Immutep lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through AU$20m of cash and made a loss of AU$26m. However, it has net cash of AU$96.9m, so it has a bit of time before it will need more capital. 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 analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Immutep that you should be aware of.

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.