Is Oncolys BioPharma (TSE:4588) A Risky Investment?

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. Importantly, Oncolys BioPharma Inc. (TSE:4588) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Oncolys BioPharma

What Is Oncolys BioPharma's Debt?

You can click the graphic below for the historical numbers, but it shows that Oncolys BioPharma had JP¥263.9m of debt in March 2024, down from JP¥350.0m, one year before. However, its balance sheet shows it holds JP¥1.48b in cash, so it actually has JP¥1.21b net cash.

How Strong Is Oncolys BioPharma's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Oncolys BioPharma had liabilities of JP¥232.5m due within 12 months and liabilities of JP¥163.1m due beyond that. Offsetting these obligations, it had cash of JP¥1.48b as well as receivables valued at JP¥172.8m due within 12 months. So it actually has JP¥1.26b more liquid assets than total liabilities.

This surplus suggests that Oncolys BioPharma has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Oncolys BioPharma 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 Oncolys BioPharma's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Oncolys BioPharma had a loss before interest and tax, and actually shrunk its revenue by 97%, to JP¥28m. To be frank that doesn't bode well.

So How Risky Is Oncolys BioPharma?

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 Oncolys BioPharma lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of JP¥1.3b and booked a JP¥2.0b accounting loss. However, it has net cash of JP¥1.21b, so it has a bit of time before it will need more capital. 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. 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. These risks can be hard to spot. Every company has them, and we've spotted 6 warning signs for Oncolys BioPharma (of which 4 are a bit unpleasant!) you should know about.

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.

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

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