Does ABIVAX Société Anonyme (EPA:ABVX) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We note that ABIVAX Société Anonyme (EPA:ABVX) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

Check out our latest analysis for ABIVAX Société Anonyme

How Much Debt Does ABIVAX Société Anonyme Carry?

The image below, which you can click on for greater detail, shows that at June 2024 ABIVAX Société Anonyme had debt of €111.1m, up from €51.0m in one year. But on the other hand it also has €222.3m in cash, leading to a €111.2m net cash position.

How Strong Is ABIVAX Société Anonyme's Balance Sheet?

We can see from the most recent balance sheet that ABIVAX Société Anonyme had liabilities of €80.0m falling due within a year, and liabilities of €78.1m due beyond that. Offsetting this, it had €222.3m in cash and €16.4m in receivables that were due within 12 months. So it actually has €80.7m more liquid assets than total liabilities.

This surplus suggests that ABIVAX Société Anonyme has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that ABIVAX Société Anonyme has more cash than debt is arguably a good indication that it can manage its debt safely. 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 ABIVAX Société Anonyme'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.

Since ABIVAX Société Anonyme doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is ABIVAX Société Anonyme?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year ABIVAX Société Anonyme had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €155m of cash and made a loss of €177m. However, it has net cash of €111.2m, 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, we've discovered 2 warning signs for ABIVAX Société Anonyme that you should be aware of before investing here.

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.