Orgenesis (NASDAQ:ORGS) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Orgenesis Inc. (NASDAQ:ORGS) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.

Check out our latest analysis for Orgenesis

How Much Debt Does Orgenesis Carry?

The image below, which you can click on for greater detail, shows that Orgenesis had debt of US$10.9m at the end of September 2020, a reduction from US$14.6m over a year. But on the other hand it also has US$88.8m in cash, leading to a US$77.9m net cash position.

How Strong Is Orgenesis' Balance Sheet?

According to the last reported balance sheet, Orgenesis had liabilities of US$12.4m due within 12 months, and liabilities of US$11.6m due beyond 12 months. Offsetting this, it had US$88.8m in cash and US$4.28m in receivables that were due within 12 months. So it actually has US$69.1m more liquid assets than total liabilities.

This excess liquidity is a great indication that Orgenesis' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Orgenesis 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 Orgenesis's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Orgenesis wasn't profitable at an EBIT level, but managed to grow its revenue by 17%, to US$36m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Orgenesis?

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 Orgenesis had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$43m of cash and made a loss of US$51m. But the saving grace is the US$77.9m on the balance sheet. 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Orgenesis (including 1 which is a bit concerning) .

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. 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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