Does Delcath Systems (NASDAQ:DCTH) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Delcath Systems, Inc. (NASDAQ:DCTH) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Delcath Systems

How Much Debt Does Delcath Systems Carry?

You can click the graphic below for the historical numbers, but it shows that Delcath Systems had US$2.00m of debt in September 2024, down from US$9.96m, one year before. However, it does have US$14.0m in cash offsetting this, leading to net cash of US$12.0m.

How Strong Is Delcath Systems' Balance Sheet?

According to the last reported balance sheet, Delcath Systems had liabilities of US$21.6m due within 12 months, and liabilities of US$1.53m due beyond 12 months. Offsetting these obligations, it had cash of US$14.0m as well as receivables valued at US$7.03m due within 12 months. So its liabilities total US$2.09m more than the combination of its cash and short-term receivables.

This state of affairs indicates that Delcath Systems' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$381.8m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Delcath Systems 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 ultimately the future profitability of the business will decide if Delcath Systems 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.

In the last year Delcath Systems wasn't profitable at an EBIT level, but managed to grow its revenue by 946%, to US$23m. That's virtually the hole-in-one of revenue growth!

So How Risky Is Delcath Systems?

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 Delcath Systems lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$26m of cash and made a loss of US$34m. Given it only has net cash of US$12.0m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, Delcath Systems's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. Case in point: We've spotted 2 warning signs for Delcath Systems 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.

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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.