Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Nanobiotix S.A. (EPA:NANO) does carry debt. But is this debt a concern to shareholders?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Nanobiotix's Net Debt?
The image below, which you can click on for greater detail, shows that Nanobiotix had debt of €39.5m at the end of December 2021, a reduction from €42.8m over a year. However, it does have €83.9m in cash offsetting this, leading to net cash of €44.4m.
A Look At Nanobiotix's Liabilities
We can see from the most recent balance sheet that Nanobiotix had liabilities of €36.8m falling due within a year, and liabilities of €38.1m due beyond that. Offsetting this, it had €83.9m in cash and €3.88m in receivables that were due within 12 months. So it actually has €12.8m more liquid assets than total liabilities.
This short term liquidity is a sign that Nanobiotix could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Nanobiotix boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. 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.
Since Nanobiotix doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.
So How Risky Is Nanobiotix?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Nanobiotix had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €30m and booked a €47m accounting loss. Given it only has net cash of €44.4m, the company may need to raise more capital if it doesn't reach break-even 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. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for Nanobiotix (1 makes us a bit uncomfortable) you should be aware of.
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. 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.