Does Ryvu Therapeutics (WSE:RVU) 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.' 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 Ryvu Therapeutics S.A. (WSE:RVU) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Ryvu Therapeutics

What Is Ryvu Therapeutics's Net Debt?

As you can see below, at the end of September 2024, Ryvu Therapeutics had zł80.5m of debt, up from zł10.1m a year ago. Click the image for more detail. However, it does have zł247.5m in cash offsetting this, leading to net cash of zł167.0m.

How Healthy Is Ryvu Therapeutics' Balance Sheet?

The latest balance sheet data shows that Ryvu Therapeutics had liabilities of zł97.5m due within a year, and liabilities of zł127.9m falling due after that. On the other hand, it had cash of zł247.5m and zł24.0m worth of receivables due within a year. So it can boast zł46.2m more liquid assets than total liabilities.

This surplus suggests that Ryvu Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Ryvu Therapeutics 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 future earnings, more than anything, that will determine Ryvu Therapeutics's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Ryvu Therapeutics reported revenue of zł91m, which is a gain of 8.3%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Ryvu Therapeutics?

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 Ryvu Therapeutics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through zł132m of cash and made a loss of zł104m. However, it has net cash of zł167.0m, 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. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Ryvu Therapeutics you should be aware of, and 1 of them is concerning.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.