Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. We note that Eyenovia, Inc. (NASDAQ: EYEN) has debt on its balance sheet. But does this debt worry shareholders?
What risk does debt entail?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company can’t meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we look at debt levels, we first look at cash and debt levels, together.
Discover our latest analysis for Eyenovia
How much debt does Eyenovia have?
The image below, which you can click for more details, shows that in June 2021, Eyenovia was in debt of $ 7.95 million, up from 729.2,000 in a year. But on the other hand, it also has $ 27.2 million in cash, which leads to a net cash position of $ 19.2 million.
Is Eyenovia’s track record healthy?
We can see from the most recent balance sheet that Eyenovia had a liability of $ 14.6 million due within one year and a liability of $ 7.03 million due beyond. In compensation for these obligations, he had cash of US $ 27.2 million as well as receivables valued at US $ 1.17 million due within 12 months. He can therefore avail himself of $ 6.76 million in liquid assets more than total Liabilities.
This short-term liquidity is a sign that Eyenovia could probably pay off its debt easily, as its balance sheet is far from tight. Put simply, the fact that Eyenovia has more cash than debt is arguably a good indication that she can manage her debt safely. There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine Eyenovia’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Although it did not make a profit, Eyenovia at least recorded its first income as a publicly traded company in the last twelve months.
So how risky is Eyenovia?
We are convinced that loss-making companies are, in general, riskier than profitable ones. And we note that Eyenovia has recorded a loss of earnings before interest and taxes (EBIT) over the past year. And during the same period, it recorded negative free cash outflows of US $ 7.1 million and a book loss of US $ 19 million. Given that it only has $ 19.2 million in net cash, the company may need to raise more capital if it doesn’t break even soon. Even if its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company does not produce regular free cash flow. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. For example – Eyenovia has 3 warning signs we think you should be aware.
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page. free list of growing companies that have net cash on the balance sheet.
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