Health Check: How Prudently Does ImmunoGen (NASDAQ:IMGN) Use Debt?
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 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 ImmunoGen, Inc. (NASDAQ:IMGN) makes use of debt. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for ImmunoGen
How Much Debt Does ImmunoGen Carry?
As you can see below, ImmunoGen had US$2.09m of debt, at December 2020, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$293.9m in cash, leading to a US$291.8m net cash position.
How Strong Is ImmunoGen's Balance Sheet?
We can see from the most recent balance sheet that ImmunoGen had liabilities of US$122.3m falling due within a year, and liabilities of US$143.2m due beyond that. On the other hand, it had cash of US$293.9m and US$22.5m worth of receivables due within a year. So it can boast US$50.9m more liquid assets than total liabilities.
This short term liquidity is a sign that ImmunoGen could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, ImmunoGen boasts net cash, so it's fair to say it does not have a heavy debt load! 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 ImmunoGen 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.
Over 12 months, ImmunoGen reported revenue of US$132m, which is a gain of 61%, 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 ImmunoGen?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months ImmunoGen lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$80m of cash and made a loss of US$44m. However, it has net cash of US$291.8m, so it has a bit of time before it will need more capital. ImmunoGen's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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 instance, we've identified 3 warning signs for ImmunoGen that you should be aware of.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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.
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