Is Bavarian Nordic (CPH:BAVA) Weighed On By Its Debt Load?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We can see that Bavarian Nordic A/S (CPH:BAVA) does use debt in its business. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Bavarian Nordic

What Is Bavarian Nordic's Debt?

As you can see below, at the end of September 2022, Bavarian Nordic had kr.891.7m of debt, up from kr.851.1m a year ago. Click the image for more detail. However, its balance sheet shows it holds kr.3.24b in cash, so it actually has kr.2.35b net cash.

A Look At Bavarian Nordic's Liabilities

The latest balance sheet data shows that Bavarian Nordic had liabilities of kr.2.31b due within a year, and liabilities of kr.3.02b falling due after that. Offsetting these obligations, it had cash of kr.3.24b as well as receivables valued at kr.678.6m due within 12 months. So its liabilities total kr.1.42b more than the combination of its cash and short-term receivables.

Given Bavarian Nordic has a market capitalization of kr.15.8b, it's hard to believe these liabilities pose much threat. 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, Bavarian Nordic 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 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Bavarian Nordic reported revenue of kr.2.4b, which is a gain of 52%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Bavarian Nordic?

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 Bavarian Nordic 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 kr.1.3b and booked a kr.599m accounting loss. With only kr.2.35b on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Bavarian Nordic may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. For example - Bavarian Nordic has 1 warning sign we think you should be aware of.

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.