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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. As with many other companies Hansa Biopharma AB (publ) (STO:HNSA) makes use of debt. But the more important question is: how much risk is that debt creating?
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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Hansa Biopharma
What Is Hansa Biopharma's Debt?
The image below, which you can click on for greater detail, shows that at June 2019 Hansa Biopharma had debt of kr741.0k, up from none in one year. However, it does have kr762.7m in cash offsetting this, leading to net cash of kr762.0m.
How Strong Is Hansa Biopharma's Balance Sheet?
The latest balance sheet data shows that Hansa Biopharma had liabilities of kr49.7m due within a year, and liabilities of kr12.7m falling due after that. On the other hand, it had cash of kr762.7m and kr4.79m worth of receivables due within a year. So it can boast kr705.1m more liquid assets than total liabilities.
This surplus suggests that Hansa Biopharma has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Hansa Biopharma 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 Hansa Biopharma'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.
In the last year Hansa Biopharma managed to grow its revenue by 6.3%, to kr3.4m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.