Inovio Pharmaceuticals (NASDAQ:INO) Has Debt But No Earnings; Should You Worry?

Simply Wall St
March 21, 2022
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Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Inovio Pharmaceuticals, Inc. (NASDAQ:INO) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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 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 step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Inovio Pharmaceuticals

What Is Inovio Pharmaceuticals's Debt?

The image below, which you can click on for greater detail, shows that Inovio Pharmaceuticals had debt of US$15.0m at the end of December 2021, a reduction from US$18.7m over a year. But it also has US$401.3m in cash to offset that, meaning it has US$386.4m net cash.

NasdaqGS:INO Debt to Equity History March 21st 2022

How Strong Is Inovio Pharmaceuticals' Balance Sheet?

According to the last reported balance sheet, Inovio Pharmaceuticals had liabilities of US$65.7m due within 12 months, and liabilities of US$30.5m due beyond 12 months. Offsetting this, it had US$401.3m in cash and US$8.03m in receivables that were due within 12 months. So it can boast US$313.1m more liquid assets than total liabilities.

This surplus strongly suggests that Inovio Pharmaceuticals has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Inovio Pharmaceuticals 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 ultimately the future profitability of the business will decide if Inovio Pharmaceuticals 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.

Over 12 months, Inovio Pharmaceuticals made a loss at the EBIT level, and saw its revenue drop to US$1.8m, which is a fall of 76%. To be frank that doesn't bode well.

So How Risky Is Inovio Pharmaceuticals?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Inovio Pharmaceuticals 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$217m and booked a US$304m accounting loss. But the saving grace is the US$386.4m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 be aware of the 4 warning signs we've spotted with Inovio Pharmaceuticals .

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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