Is Xspray Pharma (STO:XSPRAY) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Xspray Pharma AB (publ) (STO:XSPRAY) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Xspray Pharma's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Xspray Pharma had kr96.0m of debt, an increase on none, over one year. However, its balance sheet shows it holds kr208.2m in cash, so it actually has kr112.2m net cash.

How Healthy Is Xspray Pharma's Balance Sheet?

The latest balance sheet data shows that Xspray Pharma had liabilities of kr146.1m due within a year, and liabilities of kr27.1m falling due after that. Offsetting this, it had kr208.2m in cash and kr4.02m in receivables that were due within 12 months. So it actually has kr39.0m more liquid assets than total liabilities.

This surplus suggests that Xspray Pharma has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Xspray Pharma boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Xspray Pharma can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Xspray Pharma

Given its lack of meaningful operating revenue, Xspray Pharma shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Xspray Pharma?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Xspray Pharma had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of kr265m and booked a kr286m accounting loss. Given it only has net cash of kr112.2m, 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. 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 4 warning signs for Xspray Pharma you should be aware of, and 2 of them shouldn't be ignored.

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.