INmune Bio (NASDAQ:INMB) uses debt safely

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Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The greatest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Above all, INmune Bio, Inc. (NASDAQ:INMB) is in debt. But does this debt worry shareholders?

When is debt a problem?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. If things go really bad, lenders can take over the business. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. By replacing dilution, however, debt can be a great tool for companies 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.

What is INmune Bio debt?

You can click on the chart below for historical numbers, but it shows that in March 2022, INmune Bio had $14.5 million in debt, an increase of none, year over year. However, his balance sheet shows that he holds $66.7 million in cash, so he actually has net cash of $52.2 million.

NasdaqCM: INMB Debt to Equity History August 1, 2022

How strong is INmune Bio’s balance sheet?

We can see from the most recent balance sheet that INmune Bio had liabilities of US$3.23 million due within one year, and liabilities of US$15.5 million due beyond . In compensation for these obligations, it had cash of US$66.7 million as well as receivables valued at US$5.65 million and maturing within 12 months. He can therefore boast of having $53.7 million in cash more than total Passives.

This excess liquidity is an excellent indication that INmune Bio’s balance sheet is almost as strong as Fort Knox’s. From this perspective, lenders should feel as secure as the beloved of a black belt karate master. In short, INmune Bio has a net cash position, so it’s fair to say that it doesn’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether INmune Bio 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.

Given its lack of significant operating revenue, INmune Bio’s shareholders are no doubt hoping to fund itself until it has a profitable product.

So how risky is INmune Bio?

By their very nature, companies that lose money are riskier than those with a long history of profitability. And we note that INmune Bio recorded a loss of earnings before interest and taxes (EBIT) over the past year. Indeed, during this period, it burned $32 million in cash and suffered a loss of $33 million. But at least it has $52.2 million on the balance sheet to spend on near-term growth. The good news for shareholders is that INmune Bio has skyrocketing revenue growth, so there is a very good chance that it can increase its free cash flow in the years to come. High-growth, for-profit businesses may well be risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks reside on the balance sheet, far from it. For example, we have identified 5 warning signs for INmune Bio (3 doesn’t sit too well with us) which you should be aware of.

If you are interested in investing in businesses that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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