Is Cellectis (EPA:ALCLS) Using Too Much Debt?

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.' 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. As with many other companies Cellectis S.A. (EPA:ALCLS) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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 Cellectis

What Is Cellectis's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Cellectis had US$21.5m of debt, an increase on none, over one year. However, it does have US$210.7m in cash offsetting this, leading to net cash of US$189.2m.

A Look At Cellectis' Liabilities

According to the last reported balance sheet, Cellectis had liabilities of US$49.6m due within 12 months, and liabilities of US$101.1m due beyond 12 months. Offsetting this, it had US$210.7m in cash and US$10.2m in receivables that were due within 12 months. So it actually has US$70.2m more liquid assets than total liabilities.

This excess liquidity suggests that Cellectis is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Cellectis 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 ultimately the future profitability of the business will decide if Cellectis can strengthen its balance sheet over time. 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, Cellectis made a loss at the EBIT level, and saw its revenue drop to US$68m, which is a fall of 7.0%. That's not what we would hope to see.

So How Risky Is Cellectis?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Cellectis lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$154m and booked a US$129m accounting loss. But the saving grace is the US$189.2m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. 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. Be aware that Cellectis is showing 3 warning signs in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.