Yahoo Finance Is Amplia Therapeutics (ASX:ATX) Weighed On By Its Debt Load?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. As with many other companies Amplia Therapeutics Limited (ASX:ATX) makes use of debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for Amplia Therapeutics
What Is Amplia Therapeutics's Net Debt?
The image below, which you can click on for greater detail, shows that at March 2022 Amplia Therapeutics had debt of AU$2.10m, up from none in one year. However, its balance sheet shows it holds AU$14.6m in cash, so it actually has AU$12.5m net cash.
A Look At Amplia Therapeutics' Liabilities
Zooming in on the latest balance sheet data, we can see that Amplia Therapeutics had liabilities of AU$530.2k due within 12 months and liabilities of AU$2.11m due beyond that. Offsetting these obligations, it had cash of AU$14.6m as well as receivables valued at AU$1.84m due within 12 months. So it can boast AU$13.8m more liquid assets than total liabilities.
This luscious liquidity implies that Amplia Therapeutics' balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Amplia Therapeutics has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Amplia Therapeutics's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Given its lack of meaningful operating revenue, Amplia Therapeutics shareholders no doubt hope it can fund itself until it has a profitable product.
So How Risky Is Amplia Therapeutics?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Amplia Therapeutics lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of AU$4.4m and booked a AU$3.6m accounting loss. With only AU$12.5m 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Amplia Therapeutics you should be aware of, and 1 of them is a bit concerning.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.
