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. As with many other companies ABIVAX Société Anonyme (EPA:ABVX) makes use of debt. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for ABIVAX Société Anonyme
What Is ABIVAX Société Anonyme’s Debt?
You can click the graphic below for the historical numbers, but it shows that as of December 2023 ABIVAX Société Anonyme had €73.9m of debt, an increase on €47.8m, over one year. But on the other hand it also has €261.0m in cash, leading to a €187.1m net cash position.
How Healthy Is ABIVAX Société Anonyme’s Balance Sheet?
We can see from the most recent balance sheet that ABIVAX Société Anonyme had liabilities of €70.0m falling due within a year, and liabilities of €61.0m due beyond that. On the other hand, it had cash of €261.0m and €19.1m worth of receivables due within a year. So it actually has €149.0m more liquid assets than total liabilities.
This surplus suggests that ABIVAX Société Anonyme is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that ABIVAX Société Anonyme 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 ABIVAX Société Anonyme 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 ABIVAX Société Anonyme 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 ABIVAX Société Anonyme?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that ABIVAX Société Anonyme had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €97m of cash and made a loss of €148m. While this does make the company a bit risky, it’s important to remember it has net cash of €187.1m. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. For example, we’ve discovered 4 warning signs for ABIVAX Société Anonyme that you should be aware of before investing here.
When all is said and done, sometimes its easier to focus on companies that don’t even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
Valuation is complex, but we’re helping make it simple.
Find out whether ABIVAX Société Anonyme is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
