Is Oryzon Genomics (BME:ORY) Weighed On By Its Debt Load?

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.' 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, Oryzon Genomics S.A. (BME:ORY) does carry debt. But should shareholders be worried about its use of debt?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Oryzon Genomics

What Is Oryzon Genomics's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2021 Oryzon Genomics had debt of €17.7m, up from €13.5m in one year. But it also has €28.7m in cash to offset that, meaning it has €11.1m net cash.

A Look At Oryzon Genomics' Liabilities

Zooming in on the latest balance sheet data, we can see that Oryzon Genomics had liabilities of €8.67m due within 12 months and liabilities of €15.5m due beyond that. Offsetting these obligations, it had cash of €28.7m as well as receivables valued at €3.78m due within 12 months. So it actually has €8.38m more liquid assets than total liabilities.

This surplus suggests that Oryzon Genomics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Oryzon Genomics 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 Oryzon Genomics'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.

Over 12 months, Oryzon Genomics reported revenue of €11m, which is a gain of 11%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Oryzon Genomics?

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 Oryzon Genomics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €15m of cash and made a loss of €4.7m. However, it has net cash of €11.1m, 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example Oryzon Genomics has 3 warning signs (and 1 which is concerning) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.