Is Eyenovia (NASDAQ:EYEN) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Eyenovia, Inc. (NASDAQ:EYEN) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Eyenovia

How Much Debt Does Eyenovia Carry?

The image below, which you can click on for greater detail, shows that at June 2021 Eyenovia had debt of US$7.95m, up from US$729.2k in one year. But on the other hand it also has US$27.2m in cash, leading to a US$19.2m net cash position.

How Healthy Is Eyenovia's Balance Sheet?

We can see from the most recent balance sheet that Eyenovia had liabilities of US$14.6m falling due within a year, and liabilities of US$7.03m due beyond that. Offsetting these obligations, it had cash of US$27.2m as well as receivables valued at US$1.17m due within 12 months. So it can boast US$6.76m more liquid assets than total liabilities.

This short term liquidity is a sign that Eyenovia could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Eyenovia has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. 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're focused on the future you can check out this free report showing analyst profit forecasts.

While it hasn't made a profit, at least Eyenovia booked its first revenue as a publicly listed company, in the last twelve months.

So How Risky Is Eyenovia?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Eyenovia had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$7.1m and booked a US$19m accounting loss. Given it only has net cash of US$19.2m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Eyenovia has 3 warning signs we think you should be aware of.

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.
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