BioNTech (NASDAQ:BNTX) Could Easily Take On More Debt

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. Importantly, BioNTech SE (NASDAQ:BNTX) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for BioNTech

What Is BioNTech's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 BioNTech had €2.40m of debt, an increase on €2.10m, over one year. However, it does have €16.5b in cash offsetting this, leading to net cash of €16.5b.

A Look At BioNTech's Liabilities

Zooming in on the latest balance sheet data, we can see that BioNTech had liabilities of €2.07b due within 12 months and liabilities of €689.9m due beyond that. On the other hand, it had cash of €16.5b and €2.34b worth of receivables due within a year. So it actually has €16.1b more liquid assets than total liabilities.

This surplus strongly suggests that BioNTech has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, BioNTech boasts net cash, so it's fair to say it does not have a heavy debt load!

The modesty of its debt load may become crucial for BioNTech if management cannot prevent a repeat of the 92% cut to EBIT over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if BioNTech 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While BioNTech has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, BioNTech produced sturdy free cash flow equating to 67% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that BioNTech has net cash of €16.5b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of €4.7b, being 67% of its EBIT. So we don't think BioNTech's use of debt is risky. 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. For instance, we've identified 2 warning signs for BioNTech (1 is concerning) you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.