September 27, 2022

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Valneva SE (EPA:VLA) 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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Valneva
You can click the graphic below for the historical numbers, but it shows that as of June 2022 Valneva had €78.6m of debt, an increase on €54.5m, over one year. But on the other hand it also has €336.2m in cash, leading to a €257.6m net cash position.
We can see from the most recent balance sheet that Valneva had liabilities of €436.1m falling due within a year, and liabilities of €195.7m due beyond that. On the other hand, it had cash of €336.2m and €16.3m worth of receivables due within a year. So its liabilities total €279.4m more than the combination of its cash and short-term receivables.
Valneva has a market capitalization of €951.0m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Valneva also has more cash than debt, so we're pretty confident 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 Valneva'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, Valneva reported revenue of €304m, which is a gain of 177%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth
Statistically speaking companies that lose money are riskier than those that make money. And we do note that Valneva had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €177m and booked a €159m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of €257.6m. That means it could keep spending at its current rate for more than two years. The good news for shareholders is that Valneva has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Valneva has 3 warning signs (and 1 which is significant) we think you should know about.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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 Valneva 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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Valneva SE, a specialty vaccine company, focuses on the development and commercialization of prophylactic vaccines for infectious diseases with unmet needs.
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.
Excellent balance sheet and slightly overvalued.
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.
Valneva SE, a specialty vaccine company, focuses on the development and commercialization of prophylactic vaccines for infectious diseases with unmet needs.
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.
Excellent balance sheet and slightly overvalued.
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