Is Eyenovia (NASDAQ:EYEN) Using Debt In A Risky Way?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Eyenovia, Inc. (NASDAQ:EYEN) makes use of debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt 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 2023 Eyenovia had debt of US$14.1m, up from US$7.43m in one year. But on the other hand it also has US$17.5m in cash, leading to a US$3.34m net cash position.

A Look At Eyenovia's Liabilities

Zooming in on the latest balance sheet data, we can see that Eyenovia had liabilities of US$4.06m due within 12 months and liabilities of US$14.8m due beyond that. Offsetting these obligations, it had cash of US$17.5m as well as receivables valued at US$1.07m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Eyenovia's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$58.5m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Eyenovia 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 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.

It seems likely shareholders hope that Eyenovia can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

So How Risky Is Eyenovia?

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 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$26m and booked a US$25m accounting loss. Given it only has net cash of US$3.34m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Case in point: We've spotted 6 warning signs for Eyenovia you should be aware of, and 3 of them are a bit unpleasant.

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.