Health Check: How Prudently Does Cerus (NASDAQ:CERS) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Cerus Corporation (NASDAQ:CERS) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Cerus

How Much Debt Does Cerus Carry?

The chart below, which you can click on for greater detail, shows that Cerus had US$71.4m in debt in June 2023; about the same as the year before. But on the other hand it also has US$84.5m in cash, leading to a US$13.1m net cash position.

How Healthy Is Cerus' Balance Sheet?

We can see from the most recent balance sheet that Cerus had liabilities of US$75.1m falling due within a year, and liabilities of US$72.1m due beyond that. Offsetting this, it had US$84.5m in cash and US$22.6m in receivables that were due within 12 months. So its liabilities total US$40.1m more than the combination of its cash and short-term receivables.

Of course, Cerus has a market capitalization of US$254.9m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Cerus also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Cerus'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, Cerus saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Cerus?

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 Cerus had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$25m of cash and made a loss of US$51m. However, it has net cash of US$13.1m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Cerus has 3 warning signs we think you should be aware of.

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.