Is ZIOPHARM Oncology (NASDAQ:ZIOP) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, ZIOPHARM Oncology, Inc. (NASDAQ:ZIOP) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 ZIOPHARM Oncology

What Is ZIOPHARM Oncology's Net Debt?

As you can see below, at the end of September 2021, ZIOPHARM Oncology had US$24.2m of debt, up from none a year ago. Click the image for more detail. But it also has US$91.7m in cash to offset that, meaning it has US$67.5m net cash.

How Healthy Is ZIOPHARM Oncology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ZIOPHARM Oncology had liabilities of US$28.2m due within 12 months and liabilities of US$16.9m due beyond that. Offsetting these obligations, it had cash of US$91.7m as well as receivables valued at US$1.51m due within 12 months. So it can boast US$48.2m more liquid assets than total liabilities.

This surplus suggests that ZIOPHARM Oncology is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, ZIOPHARM Oncology 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 ultimately the future profitability of the business will decide if ZIOPHARM Oncology can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Since ZIOPHARM Oncology 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 ZIOPHARM Oncology?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months ZIOPHARM Oncology lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$70m of cash and made a loss of US$90m. While this does make the company a bit risky, it's important to remember it has net cash of US$67.5m. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. To that end, you should learn about the 3 warning signs we've spotted with ZIOPHARM Oncology (including 1 which is significant) .

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.