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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, INmune Bio, Inc. (NASDAQ:INMB) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for INmune Bio

What Is INmune Bio's Net Debt?

The image below, which you can click on for greater detail, shows that INmune Bio had debt of US$2.49m at the end of September 2024, a reduction from US$12.4m over a year. However, it does have US$33.6m in cash offsetting this, leading to net cash of US$31.1m.

How Strong Is INmune Bio's Balance Sheet?

According to the last reported balance sheet, INmune Bio had liabilities of US$13.8m due within 12 months, and liabilities of US$284.0k due beyond 12 months. Offsetting this, it had US$33.6m in cash and US$1.42m in receivables that were due within 12 months. So it actually has US$20.9m more liquid assets than total liabilities.

This short term liquidity is a sign that INmune Bio could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that INmune Bio has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if INmune Bio can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Since INmune Bio 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 INmune Bio?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year INmune Bio 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$26m and booked a US$41m accounting loss. However, it has net cash of US$31.1m, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for INmune Bio (of which 2 are a bit unpleasant!) you should know about.

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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