Is VBI Vaccines (NASDAQ:VBIV) A Risky Investment?

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.' 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. We note that VBI Vaccines Inc. (NASDAQ:VBIV) 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?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for VBI Vaccines

What Is VBI Vaccines's Debt?

The image below, which you can click on for greater detail, shows that at March 2022 VBI Vaccines had debt of US$29.5m, up from US$15.9m in one year. However, its balance sheet shows it holds US$101.3m in cash, so it actually has US$71.8m net cash.

How Strong Is VBI Vaccines' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that VBI Vaccines had liabilities of US$34.0m due within 12 months and liabilities of US$30.5m due beyond that. Offsetting this, it had US$101.3m in cash and US$2.87m in receivables that were due within 12 months. So it actually has US$39.8m more liquid assets than total liabilities.

This excess liquidity suggests that VBI Vaccines is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that VBI Vaccines has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if VBI Vaccines 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.

Since VBI Vaccines 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 VBI Vaccines?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months VBI Vaccines lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$55m and booked a US$73m accounting loss. With only US$71.8m 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. 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. We've identified 2 warning signs with VBI Vaccines (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

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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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.