Does Affimed (NASDAQ:AFMD) Have A Healthy Balance Sheet?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Affimed N.V. (NASDAQ:AFMD) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 Affimed

What Is Affimed's Debt?

As you can see below, at the end of March 2022, Affimed had €17.8m of debt, up from €10.1m a year ago. Click the image for more detail. However, its balance sheet shows it holds €169.9m in cash, so it actually has €152.1m net cash.

How Strong Is Affimed's Balance Sheet?

According to the last reported balance sheet, Affimed had liabilities of €57.8m due within 12 months, and liabilities of €18.0m due beyond 12 months. Offsetting this, it had €169.9m in cash and €4.55m in receivables that were due within 12 months. So it can boast €98.6m more liquid assets than total liabilities.

This surplus suggests that Affimed is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Affimed 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 Affimed'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, Affimed reported revenue of €38m, which is a gain of 7.6%, 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 Affimed?

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 Affimed 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 €102m and booked a €76m accounting loss. But the saving grace is the €152.1m on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs we've spotted with Affimed .

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.

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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.