Here's Why Immunocore Holdings (NASDAQ:IMCR) Can Manage Its Debt Despite Losing Money

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Immunocore Holdings plc (NASDAQ:IMCR) does carry debt. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Immunocore Holdings

How Much Debt Does Immunocore Holdings Carry?

The image below, which you can click on for greater detail, shows that Immunocore Holdings had debt of UK£39.5m at the end of September 2023, a reduction from UK£45.6m over a year. But it also has UK£364.0m in cash to offset that, meaning it has UK£324.4m net cash.

How Healthy Is Immunocore Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Immunocore Holdings had liabilities of UK£97.6m due within 12 months and liabilities of UK£75.0m due beyond that. On the other hand, it had cash of UK£364.0m and UK£38.2m worth of receivables due within a year. So it can boast UK£229.6m more liquid assets than total liabilities.

This surplus suggests that Immunocore Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Immunocore Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Immunocore Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Immunocore Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 88%, to UK£192m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Immunocore Holdings?

Although Immunocore Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of UK£11m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We think its revenue growth of 88% is a good sign. We'd see further strong growth as an optimistic indication. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Immunocore Holdings .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.