David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Inovio Pharmaceuticals, Inc. (NASDAQ:INO) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Inovio Pharmaceuticals

How Much Debt Does Inovio Pharmaceuticals Carry?

The chart below, which you can click on for greater detail, shows that Inovio Pharmaceuticals had US$16.5m in debt in September 2023; about the same as the year before. But it also has US$167.5m in cash to offset that, meaning it has US$151.0m net cash.

A Look At Inovio Pharmaceuticals' Liabilities

We can see from the most recent balance sheet that Inovio Pharmaceuticals had liabilities of US$43.7m falling due within a year, and liabilities of US$11.2m due beyond that. On the other hand, it had cash of US$167.5m and US$2.14m worth of receivables due within a year. So it can boast US$114.7m more liquid assets than total liabilities.

This surplus suggests that Inovio Pharmaceuticals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Inovio Pharmaceuticals has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Inovio Pharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Inovio Pharmaceuticals made a loss at the EBIT level, and saw its revenue drop to US$854k, which is a fall of 92%. To be frank that doesn't bode well.

So How Risky Is Inovio Pharmaceuticals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Inovio Pharmaceuticals had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$135m and booked a US$165m accounting loss. But at least it has US$151.0m on the balance sheet to spend on growth, near-term. 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Inovio Pharmaceuticals (2 are significant!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.