Is Mendus (STO:IMMU) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Mendus AB (publ) (STO:IMMU) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Mendus

What Is Mendus's Debt?

As you can see below, at the end of March 2022, Mendus had kr37.5m of debt, up from kr35.3m a year ago. Click the image for more detail. But on the other hand it also has kr122.9m in cash, leading to a kr85.4m net cash position.

How Healthy Is Mendus' Balance Sheet?

According to the last reported balance sheet, Mendus had liabilities of kr28.4m due within 12 months, and liabilities of kr61.2m due beyond 12 months. Offsetting these obligations, it had cash of kr122.9m as well as receivables valued at kr18.9m due within 12 months. So it can boast kr52.2m more liquid assets than total liabilities.

This surplus suggests that Mendus has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Mendus has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Mendus can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Mendus managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is Mendus?

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 Mendus 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 kr123m and booked a kr119m accounting loss. However, it has net cash of kr85.4m, so it has a bit of time before it will need more capital. 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, we've discovered 6 warning signs for Mendus (3 don't sit too well with us!) that you should be aware of before investing here.

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.