We Think Noxopharm (ASX:NOX) Has A Fair Chunk Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 Noxopharm Limited (ASX:NOX) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Noxopharm's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Noxopharm had debt of AU$2.48m, up from none in one year. However, because it has a cash reserve of AU$1.55m, its net debt is less, at about AU$925.0k.

How Strong Is Noxopharm's Balance Sheet?

The latest balance sheet data shows that Noxopharm had liabilities of AU$3.87m due within a year, and liabilities of AU$21.2k falling due after that. Offsetting these obligations, it had cash of AU$1.55m as well as receivables valued at AU$2.95m due within 12 months. So it can boast AU$609.7k more liquid assets than total liabilities.

This short term liquidity is a sign that Noxopharm could probably pay off its debt with ease, as its balance sheet is far from stretched. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Noxopharm's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Noxopharm

Given its lack of meaningful operating revenue, Noxopharm shareholders no doubt hope it can fund itself until it has a profitable product.

Caveat Emptor

Over the last twelve months Noxopharm produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable AU$5.4m at the EBIT level. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. So it seems too risky for our taste. 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 example Noxopharm has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.