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

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 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 BioLineRx Ltd. (TLV:BLRX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for BioLineRx

What Is BioLineRx's Net Debt?

As you can see below, BioLineRx had US$3.58m of debt at September 2021, down from US$6.52m a year prior. However, its balance sheet shows it holds US$62.2m in cash, so it actually has US$58.6m net cash.

How Healthy Is BioLineRx's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BioLineRx had liabilities of US$10.3m due within 12 months and liabilities of US$5.69m due beyond that. On the other hand, it had cash of US$62.2m and US$192.0k worth of receivables due within a year. So it actually has US$46.4m more liquid assets than total liabilities.

This surplus liquidity suggests that BioLineRx's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. 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! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if BioLineRx can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Since BioLineRx 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 BioLineRx?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that BioLineRx had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$24m of cash and made a loss of US$35m. With only US$58.6m 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 5 warning signs for BioLineRx you should be aware of, and 1 of them doesn't sit too well with us.

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.