Does BioLineRx (TLV:BLRX) use debt in a risky way?

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David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We note that BioLineRx Ltd. (TLV:BLRX) has debt on its balance sheet. But the real question is whether this debt makes the business risky.

What risk does debt carry?

Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. If things go really bad, lenders can take over the business. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. When we think about a company’s use of debt, we first look at cash and debt together.

Check out our latest analysis for BioLineRx

What is BioLineRx’s net debt?

As you can see below, BioLineRx had US$3.58 million in debt as of September 2021, up from US$6.52 million the previous year. However, his balance sheet shows that he holds $62.2 million in cash, so he actually has net cash of $58.6 million.

TASE: BLRX Debt to Equity History February 26, 2022

How healthy is BioLineRx’s track record?

Zooming in on the latest balance sheet data, we can see that BioLineRx had liabilities of US$10.3 million due within 12 months and liabilities of US$5.69 million due beyond. On the other hand, it had cash of $62.2 million and $192.0 k in receivables within one year. So he actually has $46.4 million Continued liquid assets than total liabilities.

This excess cash suggests that BioLineRx’s balance sheet could take a hit as well as Homer Simpson’s head can take a hit. With that in mind, one could argue that its track record means the company is capable of dealing with some adversity. In short, BioLineRx has clean cash, so it’s fair to say it’s not heavily leveraged! When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether BioLineRx can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Since BioLineRx doesn’t have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So how risky is BioLineRx?

We have no doubt that loss-making companies are, in general, more risky than profitable companies. And we note that BioLineRx has posted a loss in earnings before interest and taxes (EBIT) over the past year. Indeed, during this period, it burned $24 million in cash and suffered a loss of $35 million. With just $58.6 million on the balance sheet, it looks like it will soon have to raise capital again. Overall, its balance sheet doesn’t look too risky, at the moment, but we’re still cautious until we see positive free cash flow. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Example: we have identified 5 warning signs for BioLineRx you should be aware, and one of them doesn’t sit well with us.

Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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