Does Inozyme Pharma (NASDAQ:INZY) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Inozyme Pharma, Inc. (NASDAQ:INZY) does carry debt. But is this debt a concern to shareholders?

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. 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. 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 Inozyme Pharma

What Is Inozyme Pharma's Net Debt?

As you can see below, at the end of March 2024, Inozyme Pharma had US$45.0m of debt, up from US$24.2m a year ago. Click the image for more detail. But it also has US$166.2m in cash to offset that, meaning it has US$121.1m net cash.

How Healthy Is Inozyme Pharma's Balance Sheet?

The latest balance sheet data shows that Inozyme Pharma had liabilities of US$12.4m due within a year, and liabilities of US$45.7m falling due after that. On the other hand, it had cash of US$166.2m and US$385.0k worth of receivables due within a year. So it actually has US$108.4m more liquid assets than total liabilities.

This surplus liquidity suggests that Inozyme Pharma'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. Succinctly put, Inozyme Pharma boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Inozyme Pharma'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.

Since Inozyme Pharma 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 Inozyme Pharma?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Inozyme Pharma had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$78m and booked a US$77m accounting loss. But at least it has US$121.1m on the balance sheet to spend on growth, near-term. 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. For example Inozyme Pharma has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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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