Is Cytosorbents (NASDAQ:CTSO) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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

How Much Debt Does Cytosorbents Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Cytosorbents had US$5.02m of debt, an increase on none, over one year. But on the other hand it also has US$13.2m in cash, leading to a US$8.13m net cash position.

A Look At Cytosorbents' Liabilities

Zooming in on the latest balance sheet data, we can see that Cytosorbents had liabilities of US$10.4m due within 12 months and liabilities of US$18.0m due beyond that. Offsetting these obligations, it had cash of US$13.2m as well as receivables valued at US$7.02m due within 12 months. So its liabilities total US$8.17m more than the combination of its cash and short-term receivables.

Given Cytosorbents has a market capitalization of US$63.0m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Cytosorbents made a loss at the EBIT level, and saw its revenue drop to US$36m, which is a fall of 3.6%. We would much prefer see growth.

So How Risky Is Cytosorbents?

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 Cytosorbents lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$24m of cash and made a loss of US$26m. But at least it has US$8.13m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. 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 makes us a bit uncomfortable) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.