Health Check: How Prudently Does ABIVAX Société Anonyme (EPA:ABVX) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is ABIVAX Société Anonyme's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 ABIVAX Société Anonyme had €106.9m of debt, an increase on €73.9m, over one year. However, it does have €144.4m in cash offsetting this, leading to net cash of €37.5m.

A Look At ABIVAX Société Anonyme's Liabilities

The latest balance sheet data shows that ABIVAX Société Anonyme had liabilities of €94.0m due within a year, and liabilities of €70.6m falling due after that. On the other hand, it had cash of €144.4m and €15.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €4.62m.

Having regard to ABIVAX Société Anonyme's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the €316.9m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, ABIVAX Société Anonyme 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 ultimately the future profitability of the business will decide if ABIVAX Société Anonyme can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts .

Check out our latest analysis for ABIVAX Société Anonyme

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?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year ABIVAX Société Anonyme had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €155m and booked a €176m accounting loss. With only €37.5m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that ABIVAX Société Anonyme is showing 3 warning signs in our investment analysis , and 1 of those can't be ignored...

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.