Is Oncolys BioPharma (TSE:4588) 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.' 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. As with many other companies Oncolys BioPharma Inc. (TSE:4588) makes use of debt. But the more important question is: how much risk is that debt creating?

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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. 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, 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.

What Is Oncolys BioPharma's Net Debt?

The chart below, which you can click on for greater detail, shows that Oncolys BioPharma had JP¥261.1m in debt in March 2025; about the same as the year before. However, it does have JP¥1.71b in cash offsetting this, leading to net cash of JP¥1.45b.

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¥204.0m due within 12 months and liabilities of JP¥169.9m due beyond that. Offsetting this, it had JP¥1.71b in cash and JP¥256.0m in receivables that were due within 12 months. So it can boast JP¥1.59b 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. Simply put, the fact that Oncolys BioPharma 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 it is Oncolys BioPharma'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.

Check out our latest analysis for Oncolys BioPharma

In the last year Oncolys BioPharma wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to JP¥31m. We usually like to see faster growth from unprofitable companies, but each to their own.

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 we do note that Oncolys BioPharma had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of JP¥2.0b and booked a JP¥2.1b accounting loss. Given it only has net cash of JP¥1.45b, the company may need to raise more capital if it doesn't reach break-even 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. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Oncolys BioPharma (of which 4 can't be ignored!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.