Relief Therapeutics Holding (VTX:RLF) Has Debt But No Earnings; Should You Worry?

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. Importantly, Relief Therapeutics Holding AG (VTX:RLF) 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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Relief Therapeutics Holding

How Much Debt Does Relief Therapeutics Holding Carry?

As you can see below, at the end of June 2021, Relief Therapeutics Holding had CHF6.42m of debt, up from CHF3.41m a year ago. Click the image for more detail. However, its balance sheet shows it holds CHF20.1m in cash, so it actually has CHF13.7m net cash.

A Look At Relief Therapeutics Holding's Liabilities

Zooming in on the latest balance sheet data, we can see that Relief Therapeutics Holding had liabilities of CHF20.7m due within 12 months and liabilities of CHF35.1m due beyond that. On the other hand, it had cash of CHF20.1m and CHF1.31m worth of receivables due within a year. So it has liabilities totalling CHF34.3m more than its cash and near-term receivables, combined.

Since publicly traded Relief Therapeutics Holding shares are worth a total of CHF568.9m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Relief Therapeutics Holding 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 it is future earnings, more than anything, that will determine Relief Therapeutics Holding's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Since Relief Therapeutics Holding doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is Relief Therapeutics Holding?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Relief Therapeutics Holding had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CHF46m and booked a CHF31m accounting loss. Given it only has net cash of CHF13.7m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. To that end, you should learn about the 5 warning signs we've spotted with Relief Therapeutics Holding (including 3 which shouldn't be ignored) .

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.
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