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INmune Bio (NASDAQ:INMB) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

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.' 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 note that INmune Bio, Inc. (NASDAQ:INMB) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for INmune Bio

What Is INmune Bio's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 INmune Bio had US$14.5m of debt, an increase on none, over one year. But it also has US$66.7m in cash to offset that, meaning it has US$52.2m net cash.

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

How Strong Is INmune Bio's Balance Sheet?

According to the last reported balance sheet, INmune Bio had liabilities of US$3.23m due within 12 months, and liabilities of US$15.5m due beyond 12 months. On the other hand, it had cash of US$66.7m and US$5.65m worth of receivables due within a year. So it can boast US$53.7m more liquid assets than total liabilities.

This surplus suggests that INmune Bio is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that INmune Bio has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if INmune Bio can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Given its lack of meaningful operating revenue, INmune Bio shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is INmune Bio?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that INmune Bio had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$32m of cash and made a loss of US$33m. But at least it has US$52.2m on the balance sheet to spend on growth, near-term. The good news for shareholders is that INmune Bio has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be 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. For example, we've discovered 5 warning signs for INmune Bio (3 don't sit too well with us!) that you should be aware of before investing here.

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.

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

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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