Oryzon Genomics (BME:ORY) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Oryzon Genomics S.A. (BME:ORY) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Oryzon Genomics

How Much Debt Does Oryzon Genomics Carry?

As you can see below, Oryzon Genomics had €13.5m of debt, at December 2020, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds €39.6m in cash, so it actually has €26.1m net cash.

How Strong Is Oryzon Genomics' Balance Sheet?

The latest balance sheet data shows that Oryzon Genomics had liabilities of €7.69m due within a year, and liabilities of €10.5m falling due after that. On the other hand, it had cash of €39.6m and €2.46m worth of receivables due within a year. So it can boast €23.9m 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. Simply put, the fact that Oryzon Genomics has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. 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 made a loss at the EBIT level, and saw its revenue drop to €9.5m, which is a fall of 7.5%. That's not what we would hope to see.

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 €14m of cash and made a loss of €3.4m. But at least it has €26.1m on the balance sheet to spend on growth, near-term. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Oryzon Genomics has 4 warning signs (and 1 which shouldn't be ignored) 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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