Is Theranexus Société Anonyme (EPA:ALTHX) A Risky Investment?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Theranexus Société Anonyme (EPA:ALTHX) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Theranexus Société Anonyme

What Is Theranexus Société Anonyme's Debt?

As you can see below, at the end of June 2021, Theranexus Société Anonyme had €5.58m of debt, up from €4.19m a year ago. Click the image for more detail. However, its balance sheet shows it holds €13.5m in cash, so it actually has €7.88m net cash.

How Strong Is Theranexus Société Anonyme's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Theranexus Société Anonyme had liabilities of €2.78m due within 12 months and liabilities of €4.58m due beyond that. On the other hand, it had cash of €13.5m and €2.15m worth of receivables due within a year. So it can boast €8.25m more liquid assets than total liabilities.

It's good to see that Theranexus Société Anonyme has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Theranexus 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 it is future earnings, more than anything, that will determine Theranexus 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.

It seems likely shareholders hope that Theranexus Société Anonyme can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

So How Risky Is Theranexus Société Anonyme?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Theranexus Société Anonyme had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €8.4m of cash and made a loss of €5.7m. However, it has net cash of €7.88m, 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with Theranexus Société Anonyme (including 1 which is significant) .

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.

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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