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.' 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. Importantly, Cytosorbents Corporation (NASDAQ:CTSO) does carry debt. But should shareholders be worried about its use of debt?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Cytosorbents

What Is Cytosorbents's Net Debt?

The chart below, which you can click on for greater detail, shows that Cytosorbents had US$5.04m in debt in December 2023; about the same as the year before. But on the other hand it also has US$14.1m in cash, leading to a US$9.09m net cash position.

How Strong Is Cytosorbents' Balance Sheet?

According to the last reported balance sheet, Cytosorbents had liabilities of US$14.5m due within 12 months, and liabilities of US$15.4m due beyond 12 months. On the other hand, it had cash of US$14.1m and US$6.06m worth of receivables due within a year. So its liabilities total US$9.80m more than the combination of its cash and short-term receivables.

Since publicly traded Cytosorbents shares are worth a total of US$50.6m, it seems unlikely that this level of liabilities would be a major 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! 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Cytosorbents reported revenue of US$36m, which is a gain of 4.8%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

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. Indeed, in that time it burnt through US$23m of cash and made a loss of US$29m. With only US$9.09m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Cytosorbents (of which 1 is potentially serious!) 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. 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.