Does ABIONYX Pharma (EPA:ABNX) Have A Healthy Balance Sheet?

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 ABIONYX Pharma SA (EPA:ABNX) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. 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.

Check out our latest analysis for ABIONYX Pharma

How Much Debt Does ABIONYX Pharma Carry?

The image below, which you can click on for greater detail, shows that ABIONYX Pharma had debt of €1.61m at the end of December 2023, a reduction from €1.91m over a year. However, its balance sheet shows it holds €4.10m in cash, so it actually has €2.50m net cash.

How Strong Is ABIONYX Pharma's Balance Sheet?

The latest balance sheet data shows that ABIONYX Pharma had liabilities of €3.93m due within a year, and liabilities of €2.99m falling due after that. On the other hand, it had cash of €4.10m and €2.50m worth of receivables due within a year. So it has liabilities totalling €313.0k more than its cash and near-term receivables, combined.

This state of affairs indicates that ABIONYX Pharma's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €38.1m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, ABIONYX Pharma also has more cash than debt, so we're pretty confident 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 ABIONYX Pharma'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, ABIONYX Pharma made a loss at the EBIT level, and saw its revenue drop to €4.6m, which is a fall of 12%. That's not what we would hope to see.

So How Risky Is ABIONYX Pharma?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months ABIONYX Pharma lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of €3.8m and booked a €3.5m accounting loss. But at least it has €2.50m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 7 warning signs with ABIONYX Pharma (at least 2 which are concerning) , and understanding them should be part of your investment process.

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.

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