Is B.R.A.I.N. Biotechnology Research and Information Network (ETR:BNN) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, B.R.A.I.N. Biotechnology Research and Information Network AG (ETR:BNN) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for B.R.A.I.N. Biotechnology Research and Information Network

What Is B.R.A.I.N. Biotechnology Research and Information Network's Net Debt?

The image below, which you can click on for greater detail, shows that B.R.A.I.N. Biotechnology Research and Information Network had debt of €5.47m at the end of September 2020, a reduction from €5.99m over a year. However, its balance sheet shows it holds €19.0m in cash, so it actually has €13.6m net cash.

How Healthy Is B.R.A.I.N. Biotechnology Research and Information Network's Balance Sheet?

According to the last reported balance sheet, B.R.A.I.N. Biotechnology Research and Information Network had liabilities of €12.4m due within 12 months, and liabilities of €33.7m due beyond 12 months. Offsetting these obligations, it had cash of €19.0m as well as receivables valued at €6.57m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €20.4m.

Of course, B.R.A.I.N. Biotechnology Research and Information Network has a market capitalization of €164.7m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, B.R.A.I.N. Biotechnology Research and Information Network boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if B.R.A.I.N. Biotechnology Research and Information Network 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 B.R.A.I.N. Biotechnology Research and Information Network had a loss before interest and tax, and actually shrunk its revenue by 2.5%, to €39m. That's not what we would hope to see.

So How Risky Is B.R.A.I.N. Biotechnology Research and Information Network?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months B.R.A.I.N. Biotechnology Research and Information Network lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through €7.6m of cash and made a loss of €9.7m. With only €13.6m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. For riskier companies like B.R.A.I.N. Biotechnology Research and Information Network I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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