Here's Why Burcon NutraScience (TSE:BU) Can Afford Some 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. Importantly, Burcon NutraScience Corporation (TSE:BU) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. 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. 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.

How Much Debt Does Burcon NutraScience Carry?

As you can see below, at the end of June 2025, Burcon NutraScience had CA$8.06m of debt, up from CA$6.55m a year ago. Click the image for more detail. On the flip side, it has CA$4.23m in cash leading to net debt of about CA$3.83m.

A Look At Burcon NutraScience's Liabilities

The latest balance sheet data shows that Burcon NutraScience had liabilities of CA$4.40m due within a year, and liabilities of CA$19.0m falling due after that. Offsetting these obligations, it had cash of CA$4.23m as well as receivables valued at CA$540.2k due within 12 months. So its liabilities total CA$18.6m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of CA$27.8m, so it does suggest shareholders should keep an eye on Burcon NutraScience's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Burcon NutraScience's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for Burcon NutraScience

It seems likely shareholders hope that Burcon NutraScience can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

Caveat Emptor

Over the last twelve months Burcon NutraScience produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CA$8.4m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CA$6.6m of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 5 warning signs with Burcon NutraScience (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.

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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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.