Here's Why INmune Bio (NASDAQ:INMB) Can Manage Its Debt Despite Losing Money

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 can see that INmune Bio, Inc. (NASDAQ:INMB) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for INmune Bio

What Is INmune Bio's Debt?

The chart below, which you can click on for greater detail, shows that INmune Bio had US$14.6m in debt in September 2022; about the same as the year before. But on the other hand it also has US$57.4m in cash, leading to a US$42.8m net cash position.

How Strong Is INmune Bio's Balance Sheet?

According to the last reported balance sheet, INmune Bio had liabilities of US$6.90m due within 12 months, and liabilities of US$13.2m due beyond 12 months. On the other hand, it had cash of US$57.4m and US$4.53m worth of receivables due within a year. So it actually has US$41.8m more liquid assets than total liabilities.

It's good to see that INmune Bio has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that INmune Bio has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if INmune Bio 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.

Since INmune Bio doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is INmune Bio?

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 INmune Bio lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$27m and booked a US$31m accounting loss. However, it has net cash of US$42.8m, so it has a bit of time before it will need more capital. The good news for shareholders is that INmune Bio has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. For instance, we've identified 2 warning signs for INmune Bio (1 is concerning) 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.