Is Nanobiotix (EPA:NANO) Using Too Much Debt?

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 can see that Nanobiotix S.A. (EPA:NANO) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Nanobiotix

What Is Nanobiotix's Debt?

As you can see below, at the end of December 2020, Nanobiotix had €42.8m of debt, up from €38.1m a year ago. Click the image for more detail. But on the other hand it also has €119.2m in cash, leading to a €76.4m net cash position.

A Look At Nanobiotix's Liabilities

According to the last reported balance sheet, Nanobiotix had liabilities of €19.0m due within 12 months, and liabilities of €44.5m due beyond 12 months. Offsetting these obligations, it had cash of €119.2m as well as receivables valued at €3.88m due within 12 months. So it can boast €59.5m more liquid assets than total liabilities.

This surplus suggests that Nanobiotix has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Nanobiotix 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 Nanobiotix can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Given its lack of meaningful operating revenue, Nanobiotix shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Nanobiotix?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Nanobiotix 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 €28m and booked a €34m accounting loss. With only €76.4m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Nanobiotix (at least 1 which is concerning) , and understanding them should be part of your investment process.

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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