Is NANO MRNALtd (TSE:4571) Weighed On By Its Debt Load?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that NANO MRNA Co.,Ltd. (TSE:4571) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for NANO MRNALtd

How Much Debt Does NANO MRNALtd Carry?

The chart below, which you can click on for greater detail, shows that NANO MRNALtd had JP¥1.11b in debt in September 2024; about the same as the year before. But it also has JP¥4.08b in cash to offset that, meaning it has JP¥2.98b net cash.

How Strong Is NANO MRNALtd's Balance Sheet?

We can see from the most recent balance sheet that NANO MRNALtd had liabilities of JP¥519.0m falling due within a year, and liabilities of JP¥1.16b due beyond that. Offsetting these obligations, it had cash of JP¥4.08b as well as receivables valued at JP¥8.00m due within 12 months. So it actually has JP¥2.41b more liquid assets than total liabilities.

This surplus suggests that NANO MRNALtd is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that NANO MRNALtd 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 you can't view debt in total isolation; since NANO MRNALtd 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.

In the last year NANO MRNALtd had a loss before interest and tax, and actually shrunk its revenue by 75%, to JP¥51m. To be frank that doesn't bode well.

So How Risky Is NANO MRNALtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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¥523m of cash and made a loss of JP¥821m. But the saving grace is the JP¥2.98b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. 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 NANO MRNALtd has 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.