Health Check: How Prudently Does BioLineRx (TLV:BLRX) Use 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.' 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. We can see that BioLineRx Ltd. (TLV:BLRX) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for BioLineRx

What Is BioLineRx's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2022 BioLineRx had debt of US$10.2m, up from US$2.76m in one year. However, it does have US$51.1m in cash offsetting this, leading to net cash of US$40.9m.

How Strong Is BioLineRx's Balance Sheet?

According to the last reported balance sheet, BioLineRx had liabilities of US$10.7m due within 12 months, and liabilities of US$14.9m due beyond 12 months. Offsetting these obligations, it had cash of US$51.1m as well as receivables valued at US$721.0k due within 12 months. So it actually has US$26.3m more liquid assets than total liabilities.

This excess liquidity is a great indication that BioLineRx's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that BioLineRx 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 ultimately the future profitability of the business will decide if BioLineRx 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.

Given its lack of meaningful operating revenue, BioLineRx shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is BioLineRx?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year BioLineRx had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$27m and booked a US$25m accounting loss. With only US$40.9m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 5 warning signs for BioLineRx (1 can't be ignored!) that you should be aware of before investing here.

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.