Yahoo Finance Is Affimed (NASDAQ:AFMD) Using Debt Sensibly?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Affimed N.V. (NASDAQ:AFMD) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 Affimed
What Is Affimed's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Affimed had €3.88m of debt in June 2019, down from €5.95m, one year before. However, it does have €87.7m in cash offsetting this, leading to net cash of €83.8m.
A Look At Affimed's Liabilities
Zooming in on the latest balance sheet data, we can see that Affimed had liabilities of €26.6m due within 12 months and liabilities of €39.7m due beyond that. Offsetting this, it had €87.7m in cash and €1.47m in receivables that were due within 12 months. So it actually has €22.9m more liquid assets than total liabilities.
This short term liquidity is a sign that Affimed could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Affimed has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Affimed 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.
In the last year Affimed managed to grow its revenue by 1841%, to €38m. That's virtually the hole-in-one of revenue growth!
So How Risky Is Affimed?
While Affimed lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €44m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We think its revenue growth of 1841% is a good sign. We'd see further strong growth as an optimistic indication. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Affimed's profit, revenue, and operating cashflow have changed over the last few years.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
