The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Matinas BioPharma Holdings, Inc. (NYSEMKT:MTNB) makes use of debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, 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.
What Is Matinas BioPharma Holdings's Debt?
As you can see below, Matinas BioPharma Holdings had US$79.9k of debt at March 2019, down from US$210.3k a year prior. However, it does have US$39.4m in cash offsetting this, leading to net cash of US$39.3m.
A Look At Matinas BioPharma Holdings's Liabilities
Zooming in on the latest balance sheet data, we can see that Matinas BioPharma Holdings had liabilities of US$3.12m due within 12 months and liabilities of US$4.45m due beyond that. Offsetting these obligations, it had cash of US$39.4m as well as receivables valued at US$89.8k due within 12 months. So it can boast US$31.9m more liquid assets than total liabilities.
This surplus strongly suggests that Matinas BioPharma Holdings has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, it seems its balance sheet is as strong as a black-belt karate master. Succinctly put, Matinas BioPharma Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Matinas BioPharma Holdings'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.
Given its lack of meaningful operating revenue, Matinas BioPharma Holdings shareholders no doubt hope it can fund itself until it has a profitable product.
So How Risky Is Matinas BioPharma Holdings?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Matinas BioPharma Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$11m and booked a US$15m accounting loss. But the saving grace is the US$39m on the balance sheet. That means it could keep spending at its current rate for more than three years. 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 I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Matinas BioPharma Holdings insider transactions.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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