Cytosorbents (NASDAQ:CTSO) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Cytosorbents Corporation (NASDAQ:CTSO) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Cytosorbents

How Much Debt Does Cytosorbents Carry?

As you can see below, Cytosorbents had US$15.2m of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. But it also has US$88.0m in cash to offset that, meaning it has US$72.8m net cash.

A Look At Cytosorbents' Liabilities

According to the last reported balance sheet, Cytosorbents had liabilities of US$17.4m due within 12 months, and liabilities of US$6.69m due beyond 12 months. On the other hand, it had cash of US$88.0m and US$5.80m worth of receivables due within a year. So it can boast US$69.7m more liquid assets than total liabilities.

It's good to see that Cytosorbents has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Cytosorbents 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 Cytosorbents 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, Cytosorbents reported revenue of US$36m, which is a gain of 54%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Cytosorbents?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Cytosorbents lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$10m of cash and made a loss of US$11m. But at least it has US$72.8m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Cytosorbents may be on a path to profitability. Pre-profit companies are often 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Cytosorbents you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.
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