Here's Why Pensana (LON:PRE) Can Afford Some Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Pensana Plc (LON:PRE) makes use of debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

What Is Pensana's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Pensana had US$17.2m of debt, an increase on US$10.8m, over one year. However, because it has a cash reserve of US$811.0k, its net debt is less, at about US$16.3m.

How Healthy Is Pensana's Balance Sheet?

According to the balance sheet data, Pensana had liabilities of US$31.4m due within 12 months, but no longer term liabilities. On the other hand, it had cash of US$811.0k and US$1.31m worth of receivables due within a year. So its liabilities total US$29.3m more than the combination of its cash and short-term receivables.

Since publicly traded Pensana shares are worth a total of US$727.5m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Pensana 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.

See our latest analysis for Pensana

Given its lack of meaningful operating revenue, investors are probably hoping that Pensana finds some valuable resources, before it runs out of money.

Caveat Emptor

Over the last twelve months Pensana produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$6.8m. 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. Another cause for caution is that is bled US$8.8m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Pensana you should be aware of, and 3 of them shouldn't be ignored.

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.