Is Enochian Biosciences (NASDAQ:ENOB) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Enochian Biosciences, Inc. (NASDAQ:ENOB) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Enochian Biosciences

What Is Enochian Biosciences's Debt?

As you can see below, Enochian Biosciences had US$6.00m of debt, at March 2022, which is about the same as the year before. You can click the chart for greater detail. But it also has US$11.2m in cash to offset that, meaning it has US$5.15m net cash.

A Look At Enochian Biosciences' Liabilities

According to the last reported balance sheet, Enochian Biosciences had liabilities of US$7.51m due within 12 months, and liabilities of US$11.3m due beyond 12 months. Offsetting this, it had US$11.2m in cash and US$1.6k in receivables that were due within 12 months. So it has liabilities totalling US$7.71m more than its cash and near-term receivables, combined.

Since publicly traded Enochian Biosciences shares are worth a total of US$137.7m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Enochian Biosciences also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Enochian Biosciences's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

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

So How Risky Is Enochian Biosciences?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Enochian Biosciences had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$26m of cash and made a loss of US$41m. But at least it has US$5.15m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 5 warning signs with Enochian Biosciences (at least 3 which are significant) , and understanding them should be part of your investment process.

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.