Is NANO MRNALtd (TSE:4571) 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.' 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. We note that NANO MRNA Co.,Ltd. (TSE:4571) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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 NANO MRNALtd

What Is NANO MRNALtd's Debt?

The chart below, which you can click on for greater detail, shows that NANO MRNALtd had JP¥1.11b in debt in March 2024; about the same as the year before. However, its balance sheet shows it holds JP¥4.28b in cash, so it actually has JP¥3.17b net cash.

How Strong Is NANO MRNALtd's Balance Sheet?

According to the last reported balance sheet, NANO MRNALtd had liabilities of JP¥486.0m due within 12 months, and liabilities of JP¥1.17b due beyond 12 months. Offsetting this, it had JP¥4.28b in cash and JP¥28.0m in receivables that were due within 12 months. So it can boast JP¥2.65b more liquid assets than total liabilities.

It's good to see that NANO MRNALtd has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, NANO MRNALtd 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 NANO MRNALtd's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, NANO MRNALtd made a loss at the EBIT level, and saw its revenue drop to JP¥135m, which is a fall of 33%. That makes us nervous, to say the least.

So How Risky Is NANO MRNALtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months NANO MRNALtd lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through JP¥585m of cash and made a loss of JP¥780m. While this does make the company a bit risky, it's important to remember it has net cash of JP¥3.17b. That means it could keep spending at its current rate for more than two years. 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. 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. For example NANO MRNALtd has 4 warning signs (and 2 which are potentially serious) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com