Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Veru Inc. (NASDAQ:VERU) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for Veru
You can click the graphic below for the historical numbers, but it shows that as of June 2022 Veru had US$14.6m of debt, an increase on US$11.7m, over one year. However, it does have US$100.6m in cash offsetting this, leading to net cash of US$85.9m.
The latest balance sheet data shows that Veru had liabilities of US$27.8m due within a year, and liabilities of US$15.9m falling due after that. On the other hand, it had cash of US$100.6m and US$8.30m worth of receivables due within a year. So it can boast US$65.1m more liquid assets than total liabilities.
This short term liquidity is a sign that Veru could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Veru boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Veru can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Veru had a loss before interest and tax, and actually shrunk its revenue by 8.6%, to US$52m. That's not what we would hope to see.
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Veru lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$28m and booked a US$47m accounting loss. With only US$85.9m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet – far from it. For instance, we've identified 1 warning sign for Veru that you should be aware of.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Find out whether Veru is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
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Veru Inc., an oncology biopharmaceutical company, focuses on developing medicines for the management of cancers.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
Read more about these checks in the individual report sections or in our analysis model.
High growth potential with adequate balance sheet.
Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.
Veru Inc., an oncology biopharmaceutical company, focuses on developing medicines for the management of cancers.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
Read more about these checks in the individual report sections or in our analysis model.
High growth potential with adequate balance sheet.
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