Is Theranexus Société Anonyme (EPA:ALTHX) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Theranexus Société Anonyme (EPA:ALTHX) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt 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 December 2020, Theranexus Société Anonyme had €5.71m of debt, up from €2.78m a year ago. Click the image for more detail. However, it does have €11.2m in cash offsetting this, leading to net cash of €5.51m.

A Look At Theranexus Société Anonyme's Liabilities

We can see from the most recent balance sheet that Theranexus Société Anonyme had liabilities of €2.28m falling due within a year, and liabilities of €4.91m due beyond that. Offsetting these obligations, it had cash of €11.2m as well as receivables valued at €1.80m due within 12 months. So it actually has €5.82m more liquid assets than total liabilities.

This surplus suggests that Theranexus Société Anonyme has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Given it has no significant operating revenue at the moment, shareholders will be hoping Theranexus Société Anonyme can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is Theranexus Société Anonyme?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Theranexus Société Anonyme had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €5.9m and booked a €4.8m accounting loss. However, it has net cash of €5.51m, so it has a bit of time before it will need more capital. 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. 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. For example Theranexus Société Anonyme has 4 warning signs (and 1 which is potentially serious) we think you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. 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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