Does Innate Pharma (EPA:IPH) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that Innate Pharma S.A. (EPA:IPH) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 Innate Pharma

What Is Innate Pharma's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Innate Pharma had €40.9m of debt, an increase on €13.2m, over one year. However, its balance sheet shows it holds €123.4m in cash, so it actually has €82.5m net cash.

A Look At Innate Pharma's Liabilities

We can see from the most recent balance sheet that Innate Pharma had liabilities of €73.6m falling due within a year, and liabilities of €90.5m due beyond that. Offsetting these obligations, it had cash of €123.4m as well as receivables valued at €41.8m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Innate Pharma's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the €176.5m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Innate Pharma has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Innate Pharma'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.

In the last year Innate Pharma wasn't profitable at an EBIT level, but managed to grow its revenue by 23%, to €57m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Innate Pharma?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Innate Pharma had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €28m of cash and made a loss of €22m. While this does make the company a bit risky, it's important to remember it has net cash of €82.5m. That kitty means the company can keep spending for growth for at least two years, at current rates. Innate Pharma's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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 - Innate Pharma has 2 warning signs we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.