Yahoo Finance Health Check: How Prudently Does Antibe Therapeutics (CVE:ATE) Use Debt?
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. So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Antibe Therapeutics Inc. (CVE:ATE) makes use of debt. But the more important question is: how much risk is that debt creating?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for Antibe Therapeutics
What Is Antibe Therapeutics's Debt?
As you can see below, at the end of September 2019, Antibe Therapeutics had CA$2.14m of debt, up from CA$2.02m a year ago. Click the image for more detail. But it also has CA$8.32m in cash to offset that, meaning it has CA$6.17m net cash.
How Healthy Is Antibe Therapeutics's Balance Sheet?
The latest balance sheet data shows that Antibe Therapeutics had liabilities of CA$5.85m due within a year, and liabilities of CA$2.49m falling due after that. Offsetting these obligations, it had cash of CA$8.32m as well as receivables valued at CA$1.15m due within 12 months. So it can boast CA$1.12m more liquid assets than total liabilities.
Having regard to Antibe Therapeutics's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CA$185.1m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Antibe Therapeutics 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 Antibe Therapeutics's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Antibe Therapeutics reported revenue of CA$10.0m, which is a gain of 10.0%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
So How Risky Is Antibe Therapeutics?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Antibe Therapeutics had negative earnings before interest and tax (EBIT), truth be told. And over the same period it saw negative free cash outflow of CA$7.8m and booked a CA$16m accounting loss. However, it has net cash of CA$6.17m, so it has a bit of time before it will need more capital. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Antibe Therapeutics (of which 1 is a bit concerning!) you should know about.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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