Is Soligenix (NASDAQ:SNGX) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Soligenix, Inc. (NASDAQ:SNGX) does carry debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 September 2021, Soligenix had US$9.85m of debt, up from US$417.8k a year ago. Click the image for more detail. However, its balance sheet shows it holds US$28.9m in cash, so it actually has US$19.0m net cash.

How Strong Is Soligenix's Balance Sheet?

We can see from the most recent balance sheet that Soligenix had liabilities of US$4.80m falling due within a year, and liabilities of US$9.87m due beyond that. On the other hand, it had cash of US$28.9m and US$148.0k worth of receivables due within a year. So it actually has US$14.4m more liquid assets than total liabilities.

This excess liquidity is a great indication that Soligenix's 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. Simply put, the fact that Soligenix 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 Soligenix'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.

Over 12 months, Soligenix made a loss at the EBIT level, and saw its revenue drop to US$869k, which is a fall of 68%. That makes us nervous, to say the least.

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 the fact is that over the last twelve months Soligenix lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$13m and booked a US$13m accounting loss. With only US$19.0m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. 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. For instance, we've identified 5 warning signs for Soligenix (1 is concerning) you should be aware of.

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.