Does Tanvex BioPharma (TPE:6541) 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.' 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. We note that Tanvex BioPharma, Inc. (TPE:6541) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Tanvex BioPharma

What Is Tanvex BioPharma's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2020 Tanvex BioPharma had debt of NT$93.3m, up from none in one year. However, its balance sheet shows it holds NT$771.8m in cash, so it actually has NT$678.5m net cash.

How Healthy Is Tanvex BioPharma's Balance Sheet?

We can see from the most recent balance sheet that Tanvex BioPharma had liabilities of NT$308.3m falling due within a year, and liabilities of NT$268.7m due beyond that. Offsetting this, it had NT$771.8m in cash and NT$1.92m in receivables that were due within 12 months. So it can boast NT$196.7m more liquid assets than total liabilities.

Having regard to Tanvex BioPharma's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the NT$11.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Tanvex BioPharma boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Tanvex BioPharma'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.

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

So How Risky Is Tanvex 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 Tanvex BioPharma lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through NT$1.9b of cash and made a loss of NT$2.2b. Given it only has net cash of NT$678.5m, 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. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Tanvex BioPharma (2 are significant!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

When trading Tanvex BioPharma or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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