BioNxt Solutions (CSE:BNXT) Is Making Moderate Use Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We can see that BioNxt Solutions Inc. (CSE:BNXT) does use debt in its business. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

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How Much Debt Does BioNxt Solutions Carry?

The image below, which you can click on for greater detail, shows that at September 2022 BioNxt Solutions had debt of CA$5.15m, up from CA$2.70m in one year. On the flip side, it has CA$2.19m in cash leading to net debt of about CA$2.96m.

A Look At BioNxt Solutions' Liabilities

According to the last reported balance sheet, BioNxt Solutions had liabilities of CA$4.40m due within 12 months, and liabilities of CA$2.16m due beyond 12 months. Offsetting this, it had CA$2.19m in cash and CA$370.4k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$4.01m.

Of course, BioNxt Solutions has a market capitalization of CA$52.9m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since BioNxt Solutions will need earnings to service that debt. 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 it has no significant operating revenue at the moment, shareholders will be hoping BioNxt Solutions can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Importantly, BioNxt Solutions had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$9.4m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled CA$6.5m in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example BioNxt Solutions has 6 warning signs (and 4 which are significant) we think you should know about.

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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