Yahoo Finance Does Affimed (NASDAQ:AFMD) Have A Healthy Balance Sheet?
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Affimed N.V. (NASDAQ:AFMD) does use debt in its business. But should shareholders be worried about its use of debt?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Affimed
What Is Affimed's Debt?
The image below, which you can click on for greater detail, shows that at June 2022 Affimed had debt of €17.9m, up from €10.1m in one year. But on the other hand it also has €237.2m in cash, leading to a €219.4m net cash position.
A Look At Affimed's Liabilities
We can see from the most recent balance sheet that Affimed had liabilities of €52.0m falling due within a year, and liabilities of €16.1m due beyond that. Offsetting this, it had €237.2m in cash and €5.52m in receivables that were due within 12 months. So it can boast €174.7m more liquid assets than total liabilities.
This surplus liquidity suggests that Affimed's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. 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 it is future earnings, more than anything, that will determine Affimed's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Affimed made a loss at the EBIT level, and saw its revenue drop to €36m, which is a fall of 16%. That's not what we would hope to see.
So How Risky Is Affimed?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Affimed lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through €111m of cash and made a loss of €76m. But the saving grace is the €219.4m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Affimed that you should be aware of before investing here.
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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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.
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