Health Check: How Prudently Does Grafenia (LON:GRA) Use Debt?

Simply Wall St

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Grafenia Plc (LON:GRA) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for Grafenia

How Much Debt Does Grafenia Carry?

As you can see below, at the end of September 2020, Grafenia had UK£3.18m of debt, up from UK£81.0k a year ago. Click the image for more detail. However, it does have UK£3.68m in cash offsetting this, leading to net cash of UK£504.0k.

debt-equity-history-analysis
debt-equity-history-analysis

A Look At Grafenia's Liabilities

The latest balance sheet data shows that Grafenia had liabilities of UK£3.60m due within a year, and liabilities of UK£6.84m falling due after that. Offsetting this, it had UK£3.68m in cash and UK£2.24m in receivables that were due within 12 months. So it has liabilities totalling UK£4.52m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Grafenia is worth UK£7.73m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Grafenia boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Grafenia will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Grafenia had a loss before interest and tax, and actually shrunk its revenue by 23%, to UK£12m. That makes us nervous, to say the least.

So How Risky Is Grafenia?

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 Grafenia had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through UK£942k of cash and made a loss of UK£3.5m. Given it only has net cash of UK£504.0k, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. Case in point: We've spotted 3 warning signs for Grafenia you should be aware of, and 1 of them doesn't sit too well with us.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Latest Stories

  • Mexican leader says Biden offers $4B for Central America

    President Joe Biden's first calls to foreign leaders went to Canadian Prime Minister Justin Trudeau and Mexican President Andrés Manuel López Obrador at a strained moment for the U.S. relationship with its North American neighbors. Mexico's president said Saturday that Biden told him the U.S. would send $4 billion to help development in Honduras, El Salvador and Guatemala — nations whose hardships have spawned tides of migration through Mexico toward the United States.

  • Exclusive: Notorious Albanian gangster smuggles mobile phone into British prison cell to post birthday wishes to family

    An Albanian gangster jailed for 27-years for smuggling huge quantities of heroin and cocaine into Britain has been making a mockery of justice by running a social media account from his prison cell. Posing with fellow gang members, Valjet Pepaj, has even used Instagram to flirt with women on the outside, boasting that he expects to be free in four years. The 31-year-old was given a lengthy sentence in April 2018 after admitting three counts of conspiracy to supply Class A drugs. He was jailed alongside two other men following a six month undercover police operation which resulted in the seizure of 50 kilograms of heroin and cocaine, worth in excess of £2 million.

  • The U.S. Deported The Man Who Would Become China's 'Father of Space Technology' Out of Fear

    America may not have won World War II and landed on the moon later if not for the contributions of a brilliant Chinese scientist named Qian Xuesen. Fearing communist presence after the war, the U.S., however, deported Qian to China, clueless that he would eventually spearhead programs that would target American troops and eventually propel China into space. Born to well-educated parents in 1911, it was evident from an early age that Qian had superior intellect.

  • Biden reeled in a record-breaking $145 million in 'dark money'

    President Biden reeled in a record-breaking $145 million in so-called dark money from anonymous donors during his presidential campaign, topping the $113 million that went to Sen. Mitt Romney (R-Utah) before his failed presidential bid in 2012, Bloomberg reports.It's not surprising that Biden set the mark given that the $1.5 billion he hauled in overall was the most ever for a challenger to an incumbent president, but it's notable in large part because Democrats have been at the forefront of a movement to ban dark money in politics since it means that supporters can back a candidate without scrutiny. Plus, Bloomberg notes, anonymous donors "will have the same access to decision makers as those whose names were disclosed, but without public awareness of who they are or what influence they might wield." As Meredith McGehee, the executive director of campaign finance reform advocacy group Issue One, told Bloomberg, "the whole point of dark money is to avoid public disclosure while getting private credit."Still, it seems the Democratic Party was willing to embrace the strategy in the hopes of defeating former President Donald Trump, who only brought in $28.4 million from anonymous donors. Read more at Bloomberg.More stories from theweek.com 7 brutally funny cartoons about Trump's White House exit McConnell is already moving to strangle the Biden presidency 'No way' McConnell has had a post-Trump 'epiphany,' political scientist says

  • Asian 'El Chapo' Tse Chi Lop arrested in the Netherlands

    The alleged ringleader of Asia’s biggest crime syndicate and one of the world’s most wanted men has been arrested in the Netherlands, with Australian authorities pushing for his extradition to face trial. Police had been chasing alleged drug kingpin Tse Chi Lop, 57, for years until his arrest by Dutch police on Friday acting on a request from Australia’s federal police. In a statement on Sunday, Australian authorities said a man "of significant interest" to law enforcement agencies had been detained. A police spokeswoman confirmed his name as Tse Chi Lop. Tse is expected to be extradited after appearing before a judge, Dutch police spokesman Thomas Aling said, adding that his arrest by national police took place without incident at Amsterdam's Schiphol Airport. "He was already on the most-wanted list and he was detained based on intelligence we received," Aling said. The Chinese-born Canadian citizen has been compared to Mexican drug lord Joaquin "El Chapo" Guzman. He has been named by the United Nations Office on Drugs and Crime (UNODC) as the suspected leader of the Asian mega-cartel known as "Sam Gor", a major producer and supplier of methamphetamines globally. Sam Gor is believed to launder its billions in drug money through businesses springing up in Southeast Asia’s Mekong region – including casinos, hotels and real estate. Australia’s federal police said Friday’s arrest followed an operation that in 2012-2013 nabbed 27 people linked to a crime syndicate spanning five countries. The group were accused of importing "substantial quantities of heroin and methamphetamine" into Australia, long a lucrative market for drug traffickers. "The syndicate targeted Australia over a number of years, importing and distributing large amounts of illicit narcotics, laundering the profits overseas and living off the wealth obtained from crime," the Australian police said. As part of the 2012-2013 raids across Melbourne, police seized AUS$9 million (US$7 million) worth of assets, including cash, designer handbags, casino chips and jewellery. The arrest of Tse Chi Lop almost a decade after that operation’s launch is a major breakthrough for Australian authorities. The country’s attorney-general will now begin preparing a formal extradition request for the alleged drug lord to face trial. Most of Asia’s meth comes from "Golden Triangle" border areas between Laos, Myanmar, Thailand and southwest China which are pumping unprecedented quantities of synthetic drugs into global markets. A study by the UNODC says Southeast Asia’s crime groups are netting more than $60 billion a year. The production of methamphetamine – either in tablet "yaba" form or the highly potent crystallised "ice" version – as well as ketamine and fentanyl, take place primarily in Myanmar’s eastern Shan state, but much of the precursor chemicals needed to cook them flows across the border from China. Thailand in 2018 netted more than 515 million yaba tablets, 17 times the amount for the entire Mekong region a decade ago, said the UNODC. Drug hauls feature near daily in headlines across the region, with traffickers finding more creative ways to ship out their illicit products.

  • Tulsi Gabbard: Domestic-Terrorism Bill Is ‘a Targeting of Almost Half of the Country’

    Tulsi Gabbard, the former Democratic representative from Hawaii, on Friday expressed concern that a proposed measure to combat domestic terrorism could be used to undermine civil liberties. Gabbard’s comments came during an appearance on Fox News Primetime when host Brian Kilmeade asked her if she was “surprised they’re pushing forward with this extra surveillance on would-be domestic terror.” “It’s so dangerous as you guys have been talking about, this is an issue that all Democrats, Republicans, independents, Libertarians should be extremely concerned about, especially because we don’t have to guess about where this goes or how this ends,” Gabbard said. She continued: “When you have people like former CIA Director John Brennan openly talking about how he’s spoken with or heard from appointees and nominees in the Biden administration who are already starting to look across our country for these types of movements similar to the insurgencies they’ve seen overseas, that in his words, he says make up this unholy alliance of religious extremists, racists, bigots, he lists a few others and at the end, even libertarians.” She said her concern lies in how officials will define the characteristics they are searching for in potential threats. “What characteristics are we looking for as we are building this profile of a potential extremist, what are we talking about? Religious extremists, are we talking about Christians, evangelical Christians, what is a religious extremist? Is it somebody who is pro-life? Where do you take this?” Gabbard said. She said the proposed legislation could create “a very dangerous undermining of our civil liberties, our freedoms in our Constitution, and a targeting of almost half of the country.” “You start looking at obviously, have to be a white person, obviously likely male, libertarians, anyone who loves freedom, liberty, maybe has an American flag outside their house, or people who, you know, attended a Trump rally,” Gabbard said. The Domestic Terrorism Prevention Act of 2021 was introduced in the House earlier this week in the aftermath of rioting at the U.S. Capitol earlier this month that left five dead. “Unlike after 9/11, the threat that reared its ugly head on January 6th is from domestic terror groups and extremists, often racially-motivated violent individuals,” Representative Brad Schneider (D., Ill.) said in a statement announcing the bipartisan legislation. “America must be vigilant to combat those radicalized to violence, and the Domestic Terrorism Prevention Act gives our government the tools to identify, monitor and thwart their illegal activities. Combatting the threat of domestic terrorism and white supremacy is not a Democratic or Republican issue, not left versus right or urban versus rural. Domestic Terrorism is an American issue, a serious threat the we can and must address together,” he said.

  • Sorry, President Biden, unity is impossible until Americans confront what ails us | Opinion

    It’s been said of Abraham Lincoln that he had a “mystical” devotion to the idea of Union. His conviction that the American states were united in an indissoluble bond is what braced him through the monstrous burdens he bore. It’s not too much to say that the very existence of this country owes in large part to the stubborn faith of that sorrowful man. He held to Union even when military reversals, political reality and common sense all counseled against it.

  • Supporters' words may haunt Trump at impeachment trial

    The words of Donald Trump supporters who are accused of participating in the deadly U.S. Capitol riot may end up being used against him in his Senate impeachment trial as he faces the charge of inciting a violent insurrection. At least five supporters facing federal charges have suggested they were taking orders from the then-president when they marched on Capitol Hill on Jan. 6 to challenge the certification of Joe Biden's election win. Jacob Chansley, the Arizona man photographed on the dais in the Senate who was shirtless and wore face paint and a furry hat with horns, has similarly pointed a finger at Trump.

  • Judge Jeanine: Welcome to the Biden administration, home to the new slogan, 'America Last'

    The Judge highlights the agenda of the new Biden presidency

  • Texas attorney general sues Biden administration over deportation freeze

    Texas Attorney General Ken Paxton is suing the Biden administration in federal district court over its 100-day freeze on deporting unauthorized immigrants, and asking for a temporary restraining order.Between the lines: The freeze went into effect Friday, temporarily halting most immigration enforcement in the U.S. In the lawsuit, Paxton claims the move "violates the U.S. Constitution, federal immigration and administrative law, and a contractual agreement between Texas" and the Department of Homeland Security. Be smart: sign up FREE for the most influential newsletter in America. * Leon Fresco, an immigration attorney, told Axios that the lawsuit is likely to fail at fully reinstating deportations because a judge cannot force Immigration and Customs Enforcement to remove any particular person. * The executive branch has broad authority over immigration enforcement, as was seen in both President Obama and President Trump's administrations. What they're saying: In the announcement of the moratorium on Wednesday, the Department of Homeland Security said the pause on deportations would "allow DHS to ensure that its resources are dedicated to responding to the most pressing challenges that the United States faces." * In Paxton's request for a temporary restraining order, he claims, "Without emergency relief, Texas faces irreparable harm from having to provide costly educational, social, welfare, healthcare, and other services to illegal aliens who remain in Texas because Defendants have ceased removing them."The White House has not yet responded to Axios' request for comment.Get smarter, faster with the news CEOs, entrepreneurs and top politicians read. Sign up for Axios Newsletters here.

  • President Biden turns to Hollywood to fill UK ambassador role

    Joe Biden is considering turning to Hollywood for his next British ambassador, according to UK officials who are working the phones to closely monitor his selection. Two top businessmen with a TV background are thought to be in contention for the London job, one of the plum assignments in the US diplomatic circuit. One is Jeffrey Katzenberg, the former chairman of Walt Disney Studios who is considered one of the most powerful men in the Los Angeles film scene. At Disney, Mr Katzenberg helped make hits like Aladdin and The Lion King. He later co-founded DreamWorks Animation, which produced Shrek and Kung Fu Panda. Mr Katzenberg hosted an event for Mr Biden during the presidential election campaign and gave $617,800 to the Biden Victory Fund. The second is David Cohen, who stepped down as senior executive vice-president of the telecoms giant Comcast this month, when the switch in US president took place.

  • Michigan Mega Millions ticket wins $1.05 billion jackpot

    Someone in Michigan bought the winning ticket for the $1.05 billion Mega Millions jackpot, which is the third-largest lottery prize in U.S. history. The winning numbers for Friday night’s drawing were 4, 26, 42, 50 and 60, with a Mega Ball of 24. The winning ticket was purchased at a Kroger store in the Detroit suburb of Novi, the Michigan Lottery said.

  • Lucas Interior Embraces Color to Modernize Palm Springs Spanish Revival Home

    “The materials and colors took center stage,” said David Lucas when it came to the design of the home.Originally Appeared on Architectural Digest

  • Roommate charged with murder after body of missing Oklahoma woman found in freezer

    A woman has been arrested and charged with murder after the dismembered remains of her missing roommate, Talina Galloway, were found in a freezer in the woods of Polk County, Arkansas last week. Talina, 53, was reported missing by her roommate, Kore Bommeli on April 17, 2020. Talina’s remains were found in the freezer on January 14, 2021. Bommeli, who has been a person of interest throughout the investigation, was located in Wisconsin and faces charges of murder and desecration of a corpse. Th

  • Priest who attended pro-Trump rally ahead of Capitol insurrection is suspended from post and may be defrocked

    Reverend Mark Hodges described event as ‘joyful, positive and orderly’

  • Saudi TV says missile or drone intercepted over Riyadh

    Saudi Arabia said Saturday it intercepted an apparent missile or drone attack over its capital, Riyadh, amid the kingdom's yearslong war against neighboring Yemen's Houthi rebels. Saudi state TV quoted authorities in the kingdom acknowledging the interception. Yahia Sarei, a military spokesman for the Houthis, said in a brief statement that the rebels had not carried out attacks on Saudi Arabia in the past 24 hours.

  • Biden Calls National Guard Chief After Troops Briefly Ordered to Take Breaks in Garage

    President Biden and First Lady Jill Biden each showed their support for the Guard in their own way.

  • Man jailed for allegedly posting disrespectful photo of deputy's grave

    The Tennessee resident was arrested on suspicion of harassment for distributing the doctored picture online.

  • $1 billion U.S. Mega Millions jackpot up for grabs after record winless streak

    A billion-dollar Mega Millions jackpot that has been building for four months will be up for grabs on Friday, available to whoever can beat the one-in-302 million odds. "We generally see a lot of the sales occur on the day of the drawings," Mega Millions spokesman Seth Elkin, of the Maryland State Lottery and Gaming Control Agency, said by telephone. The selection of the six numbers will be the 37th semi-weekly drawing since the last grand prize winner was picked on Sept. 15, the longest jackpot dry spell Mega Millions has ever had, Elkin said.

  • Focus group: Former Trump voters say he should never hold office again

    "Relief" is the top emotion some swing voters who used to support Donald Trump say they felt as they watched President Biden's swearing-in, followed by "hope."Why it matters: For voters on the bubble between parties, this moment is less about excitement for Biden or liberal politics than exhaustion and disgust with Trump and a craving for national healing. Most said Trump should be prohibited from ever holding office again.Support safe, smart, sane journalism. Sign up for Axios Newsletters here.These were the biggest takeaways from our first Engagious/Schlesinger swing-voter focus groups on governance in the Biden era. * The two Jan. 21 sessions included 13 women and men who voted for Trump in 2016 but Biden in 2020, from a mix of the most competitive swing states, * While focus groups are not statistically significant samples like polls, the responses show how some voters in crucial states are thinking and talking about national priorities, expectations for Biden, and Trump's future.By the numbers: Ten of the 13 said their vote was more anti-Trump than it was pro-Biden, and nine said Trump should be barred from holding office again. * Eight support Trump's impeachment, but only one would would criminally charge him with inciting the Jan. 6 attack on the U.S. Capitol. * None believes the election was stolen from Trump.Between the lines: Coronavirus was not the reason most turned against Trump. * Ten had made up their minds before last March; some had buyer's remorse almost immediately after the 2016 election. * Rather than one tipping point, voters mentioned his moral failings, weaponizing social media, acting unpresidential, bullying, firing Cabinet members for sport, antagonizing racial and partisan divisions in society and separating children and parents at the Mexico border. * Some felt duped for thinking he was a savvy businessman who could get things done that career politicians hadn't. * "I was just so over it," said one voter, Matt S. from Georgia."Joe Biden’s main value was to spare them four more years of Donald Trump," said Engagious president Rich Thau, who moderated the focus groups.What's next: Every member of the focus groups said they want the unity Biden called for in his speech. The most important things he can do, they said, are to get the virus under control, make the vaccine accessible and heal national divisions. * Biden said a lot of the "soothing" things "that needed to be said," said Kristi H. from Texas. * "It was so good to see everyone in masks," Lawrence G. from Florida said of the optics at the swearing-in. "It's just good to see people, maybe, taking it seriously."Details: All 13 want the $1,400 stimulus checks Biden is calling on Congress to pass. “I have friends and family who need that money,” said Jennifer C. of Texas. * All want Biden to embrace a moderate rather than liberal path. * Most favor the U.S. return to the Paris climate deal, but they split over a $15-an-hour federal minimum wage and revoking Trump's so-called Muslim travel ban. * Most expressed excitement or optimism around Vice President Kamala Harris. * Some worry Biden is too old, could be pulled too far to the left or could hurt the economy by increasing spending too much or raising taxes. Be smart: These voters aren't writing off the entire Republican Party for enabling Trump. Most said they'll make voting decisions on a case-by-case basis. * "Trump does not represent the entire Republican Party," said Matthew S. from North Carolina. "Overall, the Republican Party, it’s made up of people who are trying. They make mistakes just like the Democrats make mistakes."Get smarter, faster with the news CEOs, entrepreneurs and top politicians read. Sign up for Axios Newsletters here.