Rock star Growth Puts Inovio Pharmaceuticals (NASDAQ:INO) In A Position To Use Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Inovio Pharmaceuticals, Inc. (NASDAQ:INO) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View 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$14.5m at the end of June 2021, a reduction from US$79.6m over a year. However, it does have US$443.7m in cash offsetting this, leading to net cash of US$429.1m.

How Healthy Is Inovio Pharmaceuticals' Balance Sheet?

The latest balance sheet data shows that Inovio Pharmaceuticals had liabilities of US$51.7m due within a year, and liabilities of US$31.5m falling due after that. Offsetting these obligations, it had cash of US$443.7m as well as receivables valued at US$13.9m due within 12 months. So it can boast US$374.2m more liquid assets than total liabilities.

This surplus suggests that Inovio Pharmaceuticals is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Inovio Pharmaceuticals 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 it is future earnings, more than anything, that will determine Inovio Pharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Inovio Pharmaceuticals reported revenue of US$6.5m, which is a gain of 136%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Inovio Pharmaceuticals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Inovio Pharmaceuticals had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$258m of cash and made a loss of US$142m. While this does make the company a bit risky, it's important to remember it has net cash of US$429.1m. That kitty means the company can keep spending for growth for at least two years, at current rates. The good news for shareholders is that Inovio Pharmaceuticals has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. Be aware that Inovio Pharmaceuticals is showing 1 warning sign in our investment analysis , you should know about...

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.
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