Is BioLineRx (TLV:BLRX) Using Debt In A Risky Way?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that BioLineRx Ltd. (TLV:BLRX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for BioLineRx

How Much Debt Does BioLineRx Carry?

You can click the graphic below for the historical numbers, but it shows that BioLineRx had US$4.36m of debt in June 2021, down from US$7.20m, one year before. But on the other hand it also has US$65.6m in cash, leading to a US$61.2m net cash position.

How Healthy Is BioLineRx's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BioLineRx had liabilities of US$9.92m due within 12 months and liabilities of US$7.52m due beyond that. On the other hand, it had cash of US$65.6m and US$668.0k worth of receivables due within a year. So it actually has US$48.8m more liquid assets than total liabilities.

This luscious liquidity implies that BioLineRx's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, BioLineRx boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine BioLineRx'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.

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?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year BioLineRx had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$24m of cash and made a loss of US$34m. With only US$61.2m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. 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 instance, we've identified 3 warning signs for BioLineRx (2 make us uncomfortable) you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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.

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