Some say volatility, rather than debt, is the best way to view risk as an investor, but Warren Buffett said “volatility is far from risk.” It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Mostly, Noxopharm Limited (ASX: NOX) carries a debt. But should shareholders be concerned about its use of debt?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
Check out our latest review for Noxopharm
What is Noxopharm’s debt?
As you can see below, Noxopharm was in debt of A $ 3.95 million in December 2020, up from A $ 7.46 million the year before. But on the other hand, it also has A $ 22.9 million in cash, which leads to a net cash position of A $ 18.9 million.
How strong is Noxopharm’s balance sheet?
According to the latest published balance sheet, Noxopharm had liabilities of AU $ 6.01 million due within 12 months and liabilities of AU $ 361.1,000 due beyond 12 months. In return, he had A $ 22.9 million in cash and A $ 6.09 million in receivables due within 12 months. He can therefore claim 22.6 million Australian dollars more liquid assets than total Liabilities.
This surplus suggests that Noxopharm has a prudent balance sheet and could probably eliminate its debt without too much difficulty. Put simply, the fact that Noxopharm has more cash than debt is arguably a good indication that it can safely manage its debt. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is the profits of Noxopharm that will influence the balance sheet in the future. So if you want to know more about its profits, it might be worth checking out this long term profit trend chart.
Since Noxopharm does not have significant operating income, shareholders can expect it to come up with a great new product, before it runs out of cash.
So how risky is Noxopharm?
Statistically speaking, businesses that lose money are riskier than those that earn it. And over the past year, Noxopharm has recorded a loss of earnings before interest and taxes (EBIT), frankly. Indeed, during this period, he spent AU $ 12 million in cash and recorded a loss of AU $ 45,000. With only A $ 18.9 million in net cash, the company may need to raise more capital if it doesn’t break even soon. Noxopharm’s revenue growth has shone over the past year, so it may well be able to turn a profit in due course. Nonprofits are often risky, but they can also offer great rewards. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. Concrete example: we have spotted 3 warning signs for Noxopharm you need to be aware of it, and one of them is important.
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.
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