We Think OSE Immunotherapeutics (EPA:OSE) Has A Fair Chunk Of 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. As with many other companies OSE Immunotherapeutics SA (EPA:OSE) makes use of debt. But the real question is whether this debt is making the company risky.

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 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for OSE Immunotherapeutics

What Is OSE Immunotherapeutics's Net Debt?

As you can see below, at the end of December 2022, OSE Immunotherapeutics had €40.3m of debt, up from €32.4m a year ago. Click the image for more detail. However, because it has a cash reserve of €25.6m, its net debt is less, at about €14.7m.

How Healthy Is OSE Immunotherapeutics' Balance Sheet?

The latest balance sheet data shows that OSE Immunotherapeutics had liabilities of €16.3m due within a year, and liabilities of €42.9m falling due after that. On the other hand, it had cash of €25.6m and €403.0k worth of receivables due within a year. So it has liabilities totalling €33.1m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since OSE Immunotherapeutics has a market capitalization of €74.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if OSE Immunotherapeutics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year OSE Immunotherapeutics had a loss before interest and tax, and actually shrunk its revenue by 30%, to €18m. That makes us nervous, to say the least.

Caveat Emptor

While OSE Immunotherapeutics's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping €18m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through €19m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for OSE Immunotherapeutics (1 can't be ignored!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.