Health Check: How Prudently Does Cytosorbents (NASDAQ:CTSO) Use Debt?

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 can see that Cytosorbents Corporation (NASDAQ:CTSO) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Cytosorbents

What Is Cytosorbents's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2023 Cytosorbents had US$5.01m of debt, an increase on none, over one year. But on the other hand it also has US$19.0m in cash, leading to a US$14.0m net cash position.

How Strong Is Cytosorbents' Balance Sheet?

We can see from the most recent balance sheet that Cytosorbents had liabilities of US$10.4m falling due within a year, and liabilities of US$18.1m due beyond that. Offsetting this, it had US$19.0m in cash and US$5.53m in receivables that were due within 12 months. So it has liabilities totalling US$3.93m more than its cash and near-term receivables, combined.

Given Cytosorbents has a market capitalization of US$145.5m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Cytosorbents boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Cytosorbents's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Cytosorbents had a loss before interest and tax, and actually shrunk its revenue by 14%, to US$35m. We would much prefer see growth.

So How Risky Is Cytosorbents?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Cytosorbents lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$30m and booked a US$31m accounting loss. However, it has net cash of US$14.0m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Cytosorbents (1 is concerning) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.