Is Scancell Holdings (LON:SCLP) A Risky Investment?

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 Scancell Holdings plc (LON:SCLP) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Scancell Holdings

What Is Scancell Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of October 2021 Scancell Holdings had UK£6.42m of debt, an increase on UK£3.41m, over one year. However, it does have UK£35.6m in cash offsetting this, leading to net cash of UK£29.1m.

A Look At Scancell Holdings' Liabilities

We can see from the most recent balance sheet that Scancell Holdings had liabilities of UK£1.60m falling due within a year, and liabilities of UK£20.4m due beyond that. On the other hand, it had cash of UK£35.6m and UK£2.86m worth of receivables due within a year. So it can boast UK£16.4m more liquid assets than total liabilities.

This short term liquidity is a sign that Scancell Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Scancell Holdings 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 it is future earnings, more than anything, that will determine Scancell Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Since Scancell Holdings 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 Scancell Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Scancell Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through UK£11m of cash and made a loss of UK£8.4m. However, it has net cash of UK£29.1m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 instance, we've identified 3 warning signs for Scancell Holdings (2 make us uncomfortable) you should be aware of.

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.