Warren Buffett famously said, ‘Volatility is far from synonymous with risk.’ 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, Inovio Pharmaceuticals, Inc. (NASDAQ:INO) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 Inovio Pharmaceuticals’s Net Debt?

As you can see below, at the end of March 2022, Inovio Pharmaceuticals had US$16.2m of debt, up from US$14.1m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$360.4m in cash, so it actually has US$344.2m net cash.

A Look At Inovio Pharmaceuticals’ Liabilities

Zooming in on the latest balance sheet data, we can see that Inovio Pharmaceuticals had liabilities of US$59.4m due within 12 months and liabilities of US$31.1m due beyond that. Offsetting this, it had US$360.4m in cash and US$7.49m in receivables that were due within 12 months. So it can boast US$277.5m more liquid assets than total liabilities.

This surplus strongly suggests that Inovio Pharmaceuticals has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Inovio Pharmaceuticals 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 Inovio Pharmaceuticals can strengthen its balance sheet over time.

Over 12 months, Inovio Pharmaceuticals made a loss at the EBIT level, and saw its revenue drop to US$1.6m, which is a fall of 75%. To be frank that doesn’t bode well.

So How Risky Is Inovio Pharmaceuticals?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Inovio Pharmaceuticals had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$226m and booked a US$328m accounting loss. While this does make the company a bit risky, it’s important to remember it has net cash of US$344.2m. That kitty means the company can keep spending for growth for at least two years, at current rates. 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.