Newron Pharmaceuticals (VTX:NWRN) Has Debt But No Earnings; Should You Worry?

By
Simply Wall St
Published
April 01, 2021
SWX:NWRN

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Newron Pharmaceuticals S.p.A. (VTX:NWRN) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Newron Pharmaceuticals

What Is Newron Pharmaceuticals's Debt?

As you can see below, at the end of December 2020, Newron Pharmaceuticals had €25.7m of debt, up from €16.7m a year ago. Click the image for more detail. However, its balance sheet shows it holds €31.3m in cash, so it actually has €5.58m net cash.

debt-equity-history-analysis
SWX:NWRN Debt to Equity History April 1st 2021

How Healthy Is Newron Pharmaceuticals' Balance Sheet?

The latest balance sheet data shows that Newron Pharmaceuticals had liabilities of €6.89m due within a year, and liabilities of €27.1m falling due after that. On the other hand, it had cash of €31.3m and €6.62m worth of receivables due within a year. So it can boast €3.92m more liquid assets than total liabilities.

This surplus suggests that Newron Pharmaceuticals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Newron Pharmaceuticals boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Newron Pharmaceuticals can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Newron Pharmaceuticals had a loss before interest and tax, and actually shrunk its revenue by 25%, to €5.3m. To be frank that doesn't bode well.

So How Risky Is Newron Pharmaceuticals?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Newron Pharmaceuticals had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €16m of cash and made a loss of €21m. However, it has net cash of €5.58m, so it has a bit of time before it will need more capital. 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. 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 2 warning signs for Newron Pharmaceuticals you should know about.

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.

Promoted
If you decide to trade Newron Pharmaceuticals, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account.


This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.


Simply Wall St character - Warren

Simply Wall St

Simply Wall St is a financial technology startup focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of equity analysts with a public, market-beating track record. Learn more about the team behind Simply Wall St.