We Think BiondVax Pharmaceuticals (NASDAQ:BVXV) Has A Fair Chunk Of Debt

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.' 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. We note that BiondVax Pharmaceuticals Ltd. (NASDAQ:BVXV) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.

Check out our latest analysis for BiondVax Pharmaceuticals

What Is BiondVax Pharmaceuticals's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 BiondVax Pharmaceuticals had ₪63.3m of debt, an increase on ₪60.4m, over one year. However, it does have ₪54.0m in cash offsetting this, leading to net debt of about ₪9.22m.

How Strong Is BiondVax Pharmaceuticals' Balance Sheet?

The latest balance sheet data shows that BiondVax Pharmaceuticals had liabilities of ₪7.21m due within a year, and liabilities of ₪69.1m falling due after that. Offsetting this, it had ₪54.0m in cash and ₪1.01m in receivables that were due within 12 months. So it has liabilities totalling ₪21.2m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since BiondVax Pharmaceuticals has a market capitalization of ₪102.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine BiondVax Pharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Given it has no significant operating revenue at the moment, shareholders will be hoping BiondVax Pharmaceuticals can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Importantly, BiondVax Pharmaceuticals had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₪35m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₪34m of cash over the last year. So suffice it to say we consider the stock very risky. 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. Case in point: We've spotted 6 warning signs for BiondVax Pharmaceuticals you should be aware of, and 2 of them are significant.

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.