Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Oxford Immunotec Global PLC (NASDAQ:OXFD) does carry debt. But is this debt a concern to shareholders?
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 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. When we think about a company's use of debt, we first look at cash and debt together.
What Is Oxford Immunotec Global's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Oxford Immunotec Global had US$30.0k of debt in June 2019, down from US$30.2m, one year before. However, it does have US$187.3m in cash offsetting this, leading to net cash of US$187.3m.
How Strong Is Oxford Immunotec Global's Balance Sheet?
According to the last reported balance sheet, Oxford Immunotec Global had liabilities of US$16.7m due within 12 months, and liabilities of US$7.52m due beyond 12 months. On the other hand, it had cash of US$187.3m and US$22.9m worth of receivables due within a year. So it actually has US$185.9m more liquid assets than total liabilities.
This surplus strongly suggests that Oxford Immunotec Global has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is just as strong as misogynists are weak. Simply put, the fact that Oxford Immunotec Global 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 Oxford Immunotec Global'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.
In the last year Oxford Immunotec Global actually shrunk its revenue by 37%, to US$66m. To be frank that doesn't bode well.
So How Risky Is Oxford Immunotec Global?
While Oxford Immunotec Global lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$26m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. For riskier companies like Oxford Immunotec Global I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.
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.
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