Does Regenx Tech (CVE:RGX) Have A Healthy Balance Sheet?

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. Importantly, Regenx Tech Corp. (CVE:RGX) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Regenx Tech

What Is Regenx Tech's Net Debt?

The chart below, which you can click on for greater detail, shows that Regenx Tech had CA$2.10m in debt in December 2022; about the same as the year before. However, it does have CA$1.57m in cash offsetting this, leading to net debt of about CA$524.1k.

How Healthy Is Regenx Tech's Balance Sheet?

The latest balance sheet data shows that Regenx Tech had liabilities of CA$597.4k due within a year, and liabilities of CA$2.52m falling due after that. On the other hand, it had cash of CA$1.57m and CA$31.4k worth of receivables due within a year. So its liabilities total CA$1.51m more than the combination of its cash and short-term receivables.

Given Regenx Tech has a market capitalization of CA$38.2m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Carrying virtually no net debt, Regenx Tech has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But it is Regenx Tech's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Given its lack of meaningful operating revenue, investors are probably hoping that Regenx Tech finds some valuable resources, before it runs out of money.

Caveat Emptor

Importantly, Regenx Tech had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$4.3m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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$4.6m of cash over the last year. So suffice it to say we consider the stock very risky. 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. We've identified 6 warning signs with Regenx Tech (at least 4 which are concerning) , and understanding them should be part of your investment process.

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.