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Warren Buffett said: “Volatility is far from synonymous with risk”. So it can be obvious that you need to consider debt, when you think about how risky a given stock is, because too much debt can sink a business. Like many other companies ObsEva SA (NASDAQ: OBSV) uses debt. But should shareholders be concerned about its use of debt?
When Is Debt a Problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we look at debt levels, we first consider both liquidity and debt levels.
See our latest review for ObsEva
How much debt does ObsEva have?
As you can see below, ObsEva was in debt of $ 25.5 million, as of June 2021, which is roughly the same as the year before. You can click on the graph for more details. But on the other hand, it also has $ 58.9 million in cash, which leads to a net cash position of $ 33.4 million.
A look at the responsibilities of ObsEva
The latest balance sheet data shows ObsEva had a liability of $ 18.5 million due within one year, and a liability of $ 35.0 million due thereafter. On the other hand, he had cash of US $ 58.9 million and US $ 458.0,000 in receivables due within a year. So he actually has $ 5.82 million Following liquid assets as total liabilities.
This short-term liquidity is a sign that ObsEva could probably pay off its debt easily, as its balance sheet is far from tight. In short, ObsEva has a net cash flow, so it’s fair to say that she doesn’t have a lot of debt! The balance sheet is clearly the area you need to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether ObsEva 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 income, ObsEva shareholders are no doubt hoping that it will be able to finance itself until it has a profitable product.
So how risky is ObsEva?
Statistically speaking, businesses that lose money are riskier than those that earn it. And the point is that over the past twelve months ObsEva has lost money in earnings before interest and taxes (EBIT). And during the same period, it recorded negative free cash outflows of US $ 77 million and a book loss of US $ 82 million. With only $ 33.4 million in net cash on hand, the company may need to raise more capital if it doesn’t hit breakeven soon. Overall, its balance sheet doesn’t look too risky at the moment, but we are still cautious until we see positive free cash flow. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. For example, we have identified 5 warning signs for ObsEva (2 are potentially serious) you need to be aware of.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow net-growth stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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