Does Eyenovia (NASDAQ:EYEN) Have A Healthy Balance Sheet?

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.' 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. We can see that Eyenovia, Inc. (NASDAQ:EYEN) does use debt in its business. But is this debt a concern to shareholders?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out the opportunities and risks within the US Pharmaceuticals industry.

What Is Eyenovia's Debt?

You can click the graphic below for the historical numbers, but it shows that Eyenovia had US$7.43m of debt in June 2022, down from US$7.95m, one year before. But on the other hand it also has US$21.5m in cash, leading to a US$14.1m net cash position.

How Healthy Is Eyenovia's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Eyenovia had liabilities of US$12.0m due within 12 months and liabilities of US$13.5k due beyond that. Offsetting these obligations, it had cash of US$21.5m as well as receivables valued at US$1.26m due within 12 months. So it can boast US$10.8m more liquid assets than total liabilities.

This excess liquidity suggests that Eyenovia is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Eyenovia has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Eyenovia'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.

In the last year Eyenovia wasn't profitable at an EBIT level, but managed to grow its revenue by 67%, to US$10m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Eyenovia?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Eyenovia lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$25m and booked a US$17m accounting loss. With only US$14.1m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Eyenovia may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Eyenovia has 5 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.