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

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. We can see that Inozyme Pharma, Inc. (NASDAQ:INZY) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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. 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.

Check out our latest analysis for Inozyme Pharma

What Is Inozyme Pharma's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Inozyme Pharma had US$45.6m of debt, an increase on US$32.1m, over one year. But on the other hand it also has US$131.6m in cash, leading to a US$86.0m net cash position.

A Look At Inozyme Pharma's Liabilities

According to the last reported balance sheet, Inozyme Pharma had liabilities of US$18.3m due within 12 months, and liabilities of US$42.2m due beyond 12 months. Offsetting this, it had US$131.6m in cash and US$385.0k in receivables that were due within 12 months. So it can boast US$71.4m more liquid assets than total liabilities.

This excess liquidity is a great indication that Inozyme Pharma's balance sheet is almost as strong as Fort Knox. 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 Inozyme Pharma 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 Inozyme Pharma can strengthen its balance sheet over time. 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, Inozyme Pharma shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Inozyme Pharma?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Inozyme Pharma lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$91m of cash and made a loss of US$96m. However, it has net cash of US$86.0m, so it has a bit of time before it will need more capital. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for Inozyme Pharma (2 are significant!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.