Does Bavarian Nordic (CPH:BAVA) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Bavarian Nordic A/S (CPH:BAVA) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Bavarian Nordic

What Is Bavarian Nordic's Net Debt?

As you can see below, Bavarian Nordic had kr.17.5m of debt at September 2023, down from kr.891.7m a year prior. But it also has kr.1.51b in cash to offset that, meaning it has kr.1.49b net cash.

How Healthy Is Bavarian Nordic's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Bavarian Nordic had liabilities of kr.2.89b due within 12 months and liabilities of kr.1.18b due beyond that. Offsetting this, it had kr.1.51b in cash and kr.1.18b in receivables that were due within 12 months. So its liabilities total kr.1.37b more than the combination of its cash and short-term receivables.

Since publicly traded Bavarian Nordic shares are worth a total of kr.13.7b, 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, Bavarian Nordic boasts net cash, so it's fair to say it does not have a heavy debt load!

Although Bavarian Nordic made a loss at the EBIT level, last year, it was also good to see that it generated kr.1.5b in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Bavarian Nordic'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Bavarian Nordic may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, Bavarian Nordic saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

Although Bavarian Nordic's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of kr.1.49b. So we are not troubled with Bavarian Nordic's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. 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 Bavarian Nordic 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.

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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.