Health Check: How Prudently Does Oxford Biomedica (LON:OXB) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Oxford Biomedica plc (LON:OXB) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Oxford Biomedica's Debt?

The chart below, which you can click on for greater detail, shows that Oxford Biomedica had UK£40.1m in debt in December 2024; about the same as the year before. However, it does have UK£60.7m in cash offsetting this, leading to net cash of UK£20.6m.

How Strong Is Oxford Biomedica's Balance Sheet?

The latest balance sheet data shows that Oxford Biomedica had liabilities of UK£58.3m due within a year, and liabilities of UK£112.8m falling due after that. On the other hand, it had cash of UK£60.7m and UK£59.0m worth of receivables due within a year. So it has liabilities totalling UK£51.5m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Oxford Biomedica has a market capitalization of UK£246.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Oxford Biomedica boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Oxford Biomedica 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 .

Check out our latest analysis for Oxford Biomedica

Over 12 months, Oxford Biomedica reported revenue of UK£129m, which is a gain of 44%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Oxford Biomedica?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Oxford Biomedica lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of UK£58m and booked a UK£43m accounting loss. However, it has net cash of UK£20.6m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, Oxford Biomedica may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Oxford Biomedica's profit, revenue, and operating cashflow have changed over the last few years .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.