Is Alphamab Oncology (HKG:9966) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We can see that Alphamab Oncology (HKG:9966) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Alphamab Oncology

What Is Alphamab Oncology's Net Debt?

As you can see below, at the end of December 2021, Alphamab Oncology had CN¥603.8m of debt, up from CN¥209.4m a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥1.99b in cash, so it actually has CN¥1.38b net cash.

How Healthy Is Alphamab Oncology's Balance Sheet?

We can see from the most recent balance sheet that Alphamab Oncology had liabilities of CN¥637.3m falling due within a year, and liabilities of CN¥197.5m due beyond that. Offsetting these obligations, it had cash of CN¥1.99b as well as receivables valued at CN¥67.5m due within 12 months. So it actually has CN¥1.22b more liquid assets than total liabilities.

This surplus suggests that Alphamab Oncology is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Alphamab Oncology has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Alphamab Oncology'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.

While it hasn't made a profit, at least Alphamab Oncology booked its first revenue as a publicly listed company, in the last twelve months.

So How Risky Is Alphamab Oncology?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Alphamab Oncology lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CN¥479m of cash and made a loss of CN¥412m. But the saving grace is the CN¥1.38b on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Be aware that Alphamab Oncology is showing 2 warning signs in our investment analysis , you should know about...

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.