Auditors Have Doubts About Helix BioPharma (TSE:HBP)

The harsh reality for Helix BioPharma Corp. (TSE:HBP) shareholders is that its auditors, Marcum LLP, expressed doubts about its ability to continue as a going concern, in its reported results to July 2022. This means that, based on the financial results to that date, the company arguably should raise capital, or otherwise strengthen the balance sheet, as soon as possible.

If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. So current risks on the balance sheet could have a big impact on how shareholders fare from here. The biggest concern we would have is the company's debt, since its lenders might force the company into administration if it cannot repay them.

Check out our latest analysis for Helix BioPharma

What Is Helix BioPharma's Debt?

You can click the graphic below for the historical numbers, but it shows that Helix BioPharma had CA$2.47m of debt in July 2022, down from CA$3.61m, one year before. However, its balance sheet shows it holds CA$3.25m in cash, so it actually has CA$784.0k net cash.

How Healthy Is Helix BioPharma's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Helix BioPharma had liabilities of CA$3.41m due within 12 months and no liabilities due beyond that. Offsetting this, it had CA$3.25m in cash and CA$279.0k in receivables that were due within 12 months. So it can boast CA$120.0k more liquid assets than total liabilities.

This state of affairs indicates that Helix BioPharma's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CA$36.9m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Helix BioPharma has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Helix BioPharma will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

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

So How Risky Is Helix BioPharma?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Helix BioPharma had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CA$6.5m and booked a CA$6.6m accounting loss. With only CA$784.0k on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. We're too cautious to want to invest in a company after an auditor has expressed doubts about its ability to continue as a going concern. That's because companies should always make sure the auditor has confidence that the company will continue as a going concern, in our view. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Helix BioPharma (of which 2 are potentially serious!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.