Is enGene Holdings (NASDAQ:ENGN) Using Too Much Debt?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that enGene Holdings Inc. (NASDAQ:ENGN) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for enGene Holdings

How Much Debt Does enGene Holdings Carry?

The image below, which you can click on for greater detail, shows that enGene Holdings had debt of US$22.7m at the end of April 2024, a reduction from US$70.3m over a year. However, it does have US$264.8m in cash offsetting this, leading to net cash of US$242.1m.

How Healthy Is enGene Holdings' Balance Sheet?

The latest balance sheet data shows that enGene Holdings had liabilities of US$6.30m due within a year, and liabilities of US$24.3m falling due after that. Offsetting this, it had US$264.8m in cash and US$1.21m in receivables that were due within 12 months. So it actually has US$235.5m more liquid assets than total liabilities.

This excess liquidity is a great indication that enGene Holdings' balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that enGene Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine enGene Holdings'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, enGene Holdings shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is enGene Holdings?

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 enGene Holdings lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$37m of cash and made a loss of US$115m. But the saving grace is the US$242.1m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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 3 warning signs for enGene Holdings you should be aware of, and 1 of them is concerning.

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.

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