Does Panacea Biotec (NSE:PANACEABIO) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Panacea Biotec Limited (NSE:PANACEABIO) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Panacea Biotec

What Is Panacea Biotec's Debt?

The chart below, which you can click on for greater detail, shows that Panacea Biotec had ₹209.9m in debt in March 2024; about the same as the year before. But on the other hand it also has ₹1.80b in cash, leading to a ₹1.59b net cash position.

A Look At Panacea Biotec's Liabilities

The latest balance sheet data shows that Panacea Biotec had liabilities of ₹3.09b due within a year, and liabilities of ₹936.2m falling due after that. Offsetting these obligations, it had cash of ₹1.80b as well as receivables valued at ₹606.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹1.62b.

Panacea Biotec has a market capitalization of ₹7.29b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Panacea Biotec also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Panacea Biotec will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Panacea Biotec reported revenue of ₹5.8b, which is a gain of 27%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Panacea Biotec?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Panacea Biotec had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₹778m and booked a ₹12m accounting loss. With only ₹1.59b on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Panacea Biotec may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Panacea Biotec 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.