Is INmune Bio (NASDAQ:INMB) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. As with many other companies INmune Bio, Inc. (NASDAQ:INMB) makes use of debt. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for INmune Bio

How Much Debt Does INmune Bio Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 INmune Bio had US$14.5m of debt, an increase on none, over one year. But on the other hand it also has US$74.8m in cash, leading to a US$60.4m net cash position.

How Strong Is INmune Bio's Balance Sheet?

The latest balance sheet data shows that INmune Bio had liabilities of US$4.36m due within a year, and liabilities of US$15.4m falling due after that. Offsetting this, it had US$74.8m in cash and US$5.50m in receivables that were due within 12 months. So it actually has US$60.6m more liquid assets than total liabilities.

This surplus liquidity suggests that INmune Bio's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that INmune Bio has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine INmune Bio'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.

Given its lack of meaningful operating revenue, INmune Bio shareholders no doubt hope it can fund itself until it has a profitable product.

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 in the last year INmune Bio had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$29m and booked a US$30m accounting loss. But at least it has US$60.4m on the balance sheet to spend on growth, near-term. 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. 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. Be aware that INmune Bio is showing 5 warning signs in our investment analysis , and 2 of those are a bit concerning...

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.