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Is ImmunoPrecise Antibodies (CVE:IPA) Using Debt In A Risky Way?

Simply Wall St
·4 min read

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, ImmunoPrecise Antibodies Ltd. (CVE:IPA) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

View our latest analysis for ImmunoPrecise Antibodies

How Much Debt Does ImmunoPrecise Antibodies Carry?

As you can see below, ImmunoPrecise Antibodies had CA$2.64m of debt at July 2020, down from CA$2.90m a year prior. However, its balance sheet shows it holds CA$6.06m in cash, so it actually has CA$3.42m net cash.

debt-equity-history-analysis
debt-equity-history-analysis

How Strong Is ImmunoPrecise Antibodies's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ImmunoPrecise Antibodies had liabilities of CA$7.60m due within 12 months and liabilities of CA$5.91m due beyond that. On the other hand, it had cash of CA$6.06m and CA$5.47m worth of receivables due within a year. So it has liabilities totalling CA$1.97m more than its cash and near-term receivables, combined.

This state of affairs indicates that ImmunoPrecise Antibodies's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CA$186.1m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, ImmunoPrecise Antibodies also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ImmunoPrecise Antibodies'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, ImmunoPrecise Antibodies reported revenue of CA$15m, which is a gain of 40%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is ImmunoPrecise Antibodies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that ImmunoPrecise Antibodies had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$1.3m of cash and made a loss of CA$3.5m. Given it only has net cash of CA$3.42m, the company may need to raise more capital if it doesn't reach break-even soon. ImmunoPrecise Antibodies's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with ImmunoPrecise Antibodies , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.