Is INmune Bio (NASDAQ:INMB) Using Debt Sensibly?

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.' 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. Importantly, INmune Bio, Inc. (NASDAQ:INMB) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. 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?

The image below, which you can click on for greater detail, shows that INmune Bio had debt of US$12.4m at the end of September 2023, a reduction from US$14.6m over a year. But it also has US$41.8m in cash to offset that, meaning it has US$29.4m net cash.

A Look At INmune Bio's Liabilities

We can see from the most recent balance sheet that INmune Bio had liabilities of US$14.4m falling due within a year, and liabilities of US$3.61m due beyond that. On the other hand, it had cash of US$41.8m and US$2.26m worth of receivables due within a year. So it can boast US$26.1m more liquid assets than total liabilities.

This surplus suggests that INmune Bio has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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're focused on the future you can check out this free report showing analyst profit forecasts.

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. Indeed, in that time it burnt through US$14m of cash and made a loss of US$27m. While this does make the company a bit risky, it's important to remember it has net cash of US$29.4m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with INmune Bio (including 1 which is a bit unpleasant) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.