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.' 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. We note that Immunocore Holdings plc (NASDAQ:IMCR) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Immunocore Holdings

What Is Immunocore Holdings's Net Debt?

As you can see below, at the end of June 2024, Immunocore Holdings had US$438.1m of debt, up from US$48.4m a year ago. Click the image for more detail. However, it does have US$859.6m in cash offsetting this, leading to net cash of US$421.5m.

A Look At Immunocore Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Immunocore Holdings had liabilities of US$185.1m due within 12 months and liabilities of US$479.1m due beyond that. Offsetting this, it had US$859.6m in cash and US$60.2m in receivables that were due within 12 months. So it actually has US$255.6m more liquid assets than total liabilities.

It's good to see that Immunocore Holdings has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. 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 28%, to US$281m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Immunocore Holdings?

While Immunocore Holdings lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$9.5m. 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. Keeping in mind its 28% revenue growth over the last year, we think there's a decent chance the company is on track. There's no doubt fast top line growth can cure all manner of ills, for a stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Immunocore Holdings that you should be aware of.

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.

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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.