Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. We note that HOOKIPA Pharma inc. (NASDAQ: HOOK) has debt on its balance sheet. But does this debt worry shareholders?
When Is Debt a Problem?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, debt can be an important tool in businesses, especially capital intensive businesses. When we think of a business’s use of debt, we first look at cash flow and debt together.
See our latest review for HOOKIPA Pharma
How much debt does HOOKIPA Pharma have?
The image below, which you can click for more details, shows that in June 2021, HOOKIPA Pharma was in debt of US $ 4.80 million, up from US $ 3.82 million in a year. However, it has US $ 102.5 million in cash offsetting this, leading to net cash of US $ 97.7 million.
How healthy is HOOKIPA Pharma’s balance sheet?
We can see from the most recent balance sheet that HOOKIPA Pharma had liabilities of US $ 33.9 million due within one year and liabilities of US $ 6.35 million due beyond. . On the other hand, he had US $ 102.5 million in cash and US $ 20.9 million in receivables due within one year. He can therefore claim $ 83.2 million more in liquid assets than total Liabilities.
This surplus strongly suggests that HOOKIPA Pharma has a rock solid balance sheet (and debt is not of concern). Given this fact, we believe its track record is as strong as an ox. Simply put, the fact that HOOKIPA Pharma has more cash than debt is probably a good indication that it can safely manage its debt. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether HOOKIPA Pharma can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Over the past year, HOOKIPA Pharma has not been profitable in terms of EBIT, but has managed to increase sales by 24%, to US $ 20 million. Hopefully the business will be able to move towards profitability.
So how risky is HOOKIPA Pharma?
By their very nature, businesses that lose money are riskier than those with a long history of profitability. And we note that HOOKIPA Pharma has recorded a loss of earnings before interest and taxes (EBIT) over the past year. And during the same period, it recorded negative free cash outflows of US $ 63 million and a book loss of US $ 60 million. While this does make the company a bit risky, it’s important to remember that it has a net cash flow of $ 97.7 million. This means that he could continue to spend at his current rate for more than two years. With very solid revenue growth over the past year, HOOKIPA Pharma could be on the path to profitability. Nonprofits are often risky, but they can also offer great rewards. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. We have identified 3 warning signs with HOOKIPA Pharma, and understanding them should be part of your investment process.
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
If you are looking to trade HOOKIPA Pharma, open an account with the cheapest * platform that professionals trust, Interactive Brokers. Their clients from more than 200 countries and territories trade stocks, options, futures, currencies, bonds and funds around the world from a single integrated account.Promoted