Is Immunocore Holdings (NASDAQ:IMCR) Using Debt Sensibly?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Immunocore Holdings plc (NASDAQ:IMCR) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Immunocore Holdings

What Is Immunocore Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Immunocore Holdings had US$437.5m of debt, an increase on US$47.7m, over one year. But on the other hand it also has US$832.8m in cash, leading to a US$395.3m net cash position.

How Strong Is Immunocore Holdings' Balance Sheet?

According to the last reported balance sheet, Immunocore Holdings had liabilities of US$155.3m due within 12 months, and liabilities of US$479.2m due beyond 12 months. Offsetting these obligations, it had cash of US$832.8m as well as receivables valued at US$57.8m due within 12 months. So it can boast US$256.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Immunocore Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Immunocore Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Immunocore Holdings can strengthen its balance sheet over time. 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 Immunocore Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to US$265m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Immunocore Holdings?

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 Immunocore Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$15m and booked a US$60m accounting loss. But the saving grace is the US$395.3m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Immunocore Holdings's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger 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. To that end, you should be aware of the 2 warning signs we've spotted with Immunocore Holdings .

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.