Is Soligenix (NASDAQ:SNGX) Using Too Much Debt?
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.' 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. Importantly, Soligenix, Inc. (NASDAQ:SNGX) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Soligenix
What Is Soligenix's Net Debt?
As you can see below, Soligenix had US$9.88m of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$20.2m in cash offsetting this, leading to net cash of US$10.3m.
How Strong Is Soligenix's Balance Sheet?
The latest balance sheet data shows that Soligenix had liabilities of US$8.84m due within a year, and liabilities of US$8.27m falling due after that. Offsetting these obligations, it had cash of US$20.2m as well as receivables valued at US$430.8k due within 12 months. So it actually has US$3.48m more liquid assets than total liabilities.
This short term liquidity is a sign that Soligenix could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Soligenix 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 Soligenix'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 Soligenix had a loss before interest and tax, and actually shrunk its revenue by 32%, to US$879k. To be frank that doesn't bode well.
So How Risky Is Soligenix?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Soligenix had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$12m of cash and made a loss of US$15m. With only US$10.3m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Soligenix (of which 2 are a bit concerning!) you should know about.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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