Rock star Growth Puts Nyxoah (EBR:NYXH) In A Position To Use 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.' 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. As with many other companies Nyxoah S.A. (EBR:NYXH) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Nyxoah

How Much Debt Does Nyxoah Carry?

As you can see below, at the end of September 2023, Nyxoah had €9.18m of debt, up from €8.69m a year ago. Click the image for more detail. But on the other hand it also has €72.5m in cash, leading to a €63.3m net cash position.

How Strong Is Nyxoah's Balance Sheet?

The latest balance sheet data shows that Nyxoah had liabilities of €14.5m due within a year, and liabilities of €11.6m falling due after that. Offsetting this, it had €72.5m in cash and €4.33m in receivables that were due within 12 months. So it actually has €50.8m more liquid assets than total liabilities.

This surplus liquidity suggests that Nyxoah's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Nyxoah has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Nyxoah can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Nyxoah reported revenue of €3.8m, which is a gain of 85%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Nyxoah?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Nyxoah had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €57m of cash and made a loss of €46m. But at least it has €63.3m on the balance sheet to spend on growth, near-term. Nyxoah's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Nyxoah (of which 1 is a bit unpleasant!) you should know about.

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.

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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.