Is Microbix Biosystems (TSE:MBX) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Microbix Biosystems Inc. (TSE:MBX) does use debt in its business. But is this debt a concern to shareholders?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Microbix Biosystems Carry?

You can click the graphic below for the historical numbers, but it shows that Microbix Biosystems had CA$4.85m of debt in June 2025, down from CA$5.62m, one year before. However, it does have CA$12.1m in cash offsetting this, leading to net cash of CA$7.25m.

How Healthy Is Microbix Biosystems' Balance Sheet?

The latest balance sheet data shows that Microbix Biosystems had liabilities of CA$2.48m due within a year, and liabilities of CA$6.46m falling due after that. On the other hand, it had cash of CA$12.1m and CA$2.39m worth of receivables due within a year. So it actually has CA$5.56m more liquid assets than total liabilities.

It's good to see that Microbix Biosystems has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Microbix Biosystems boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Microbix Biosystems

Importantly, Microbix Biosystems's EBIT fell a jaw-dropping 74% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Microbix Biosystems'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Microbix Biosystems has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last two years, Microbix Biosystems reported free cash flow worth 2.2% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Microbix Biosystems has CA$7.25m in net cash and a decent-looking balance sheet. So while Microbix Biosystems does not have a great balance sheet, it's certainly not too bad. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Microbix Biosystems , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.