Does IMV (TSE:IMV) Have A Healthy Balance Sheet?

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'. 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. We can see that IMV Inc. (TSE:IMV) does use debt in its business. 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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for IMV

What Is IMV's Net Debt?

The chart below, which you can click on for greater detail, shows that IMV had CA$8.46m in debt in December 2019; about the same as the year before. However, it does have CA$14.1m in cash offsetting this, leading to net cash of CA$5.61m.

How Strong Is IMV's Balance Sheet?

According to the last reported balance sheet, IMV had liabilities of CA$6.41m due within 12 months, and liabilities of CA$9.58m due beyond 12 months. Offsetting these obligations, it had cash of CA$14.1m as well as receivables valued at CA$2.51m due within 12 months. So it actually has CA$586.0k more liquid assets than total liabilities.

Having regard to IMV's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CA$121.4m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that IMV 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 IMV can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

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

So How Risky Is IMV?

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 IMV had negative earnings before interest and tax (EBIT), truth be told. Indeed, in that time it burnt through CA$28m of cash and made a loss of CA$27m. Given it only has net cash of CA$5.61m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that IMV 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 6 warning signs for IMV you should be aware of, and 2 of them are a bit unpleasant.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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