We Think OSE Immunotherapeutics (EPA:OSE) Has A Fair Chunk Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies OSE Immunotherapeutics SA (EPA:OSE) makes use of 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. If things get really bad, the lenders can take control of the business. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for OSE Immunotherapeutics

What Is OSE Immunotherapeutics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 OSE Immunotherapeutics had €39.7m of debt, an increase on €30.9m, over one year. However, it also had €15.0m in cash, and so its net debt is €24.7m.

How Strong Is OSE Immunotherapeutics' Balance Sheet?

According to the last reported balance sheet, OSE Immunotherapeutics had liabilities of €18.5m due within 12 months, and liabilities of €39.3m due beyond 12 months. On the other hand, it had cash of €15.0m and €234.0k worth of receivables due within a year. So it has liabilities totalling €42.6m more than its cash and near-term receivables, combined.

OSE Immunotherapeutics has a market capitalization of €80.2m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine OSE Immunotherapeutics'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.

In the last year OSE Immunotherapeutics had a loss before interest and tax, and actually shrunk its revenue by 89%, to €3.6m. That makes us nervous, to say the least.

Caveat Emptor

Not only did OSE Immunotherapeutics's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping €29m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of €28m. So to be blunt we do think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that OSE Immunotherapeutics is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.