Stock Analysis

Health Check: How Prudently Does Soligenix (NASDAQ:SNGX) Use Debt?

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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.' 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 Soligenix, Inc. (NASDAQ:SNGX) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

Check out our latest analysis for Soligenix

How Much Debt Does Soligenix Carry?

As you can see below, at the end of June 2021, Soligenix had US$9.84m of debt, up from US$417.8k a year ago. Click the image for more detail. However, it does have US$29.0m in cash offsetting this, leading to net cash of US$19.1m.

NasdaqCM:SNGX Debt to Equity History August 30th 2021

How Healthy Is Soligenix's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Soligenix had liabilities of US$4.12m due within 12 months and liabilities of US$9.89m due beyond that. Offsetting this, it had US$29.0m in cash and US$224.3k in receivables that were due within 12 months. So it can boast US$15.2m more liquid assets than total liabilities.

This surplus strongly suggests that Soligenix has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Soligenix boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Soligenix'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.

In the last year Soligenix had a loss before interest and tax, and actually shrunk its revenue by 62%, to US$1.3m. To be frank that doesn't bode well.

So How Risky Is Soligenix?

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 Soligenix 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$13m and booked a US$12m accounting loss. Given it only has net cash of US$19.1m, the company may need to raise more capital if it doesn't reach break-even soon. 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 5 warning signs for Soligenix you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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