Is Onxeo (EPA:ALONX) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Onxeo SA (EPA:ALONX) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Onxeo

What Is Onxeo's Debt?

As you can see below, at the end of June 2021, Onxeo had €8.40m of debt, up from €5.11m a year ago. Click the image for more detail. But on the other hand it also has €24.5m in cash, leading to a €16.1m net cash position.

A Look At Onxeo's Liabilities

The latest balance sheet data shows that Onxeo had liabilities of €8.56m due within a year, and liabilities of €13.7m falling due after that. On the other hand, it had cash of €24.5m and €8.07m worth of receivables due within a year. So it can boast €10.3m more liquid assets than total liabilities.

This surplus suggests that Onxeo is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Onxeo 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 it is future earnings, more than anything, that will determine Onxeo'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, Onxeo made a loss at the EBIT level, and saw its revenue drop to €1.3m, which is a fall of 65%. To be frank that doesn't bode well.

So How Risky Is Onxeo?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Onxeo had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €6.8m of cash and made a loss of €8.7m. Given it only has net cash of €16.1m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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, we've discovered 4 warning signs for Onxeo that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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