Does Enzo Biochem (NYSE:ENZ) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Enzo Biochem, Inc. (NYSE:ENZ) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

See our latest analysis for Enzo Biochem

What Is Enzo Biochem's Net Debt?

The image below, which you can click on for greater detail, shows that at October 2020 Enzo Biochem had debt of US$11.6m, up from US$4.31m in one year. However, its balance sheet shows it holds US$45.9m in cash, so it actually has US$34.3m net cash.

How Healthy Is Enzo Biochem's Balance Sheet?

The latest balance sheet data shows that Enzo Biochem had liabilities of US$33.6m due within a year, and liabilities of US$20.9m falling due after that. Offsetting this, it had US$45.9m in cash and US$12.1m in receivables that were due within 12 months. So it actually has US$3.48m more liquid assets than total liabilities.

This short term liquidity is a sign that Enzo Biochem could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Enzo Biochem 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 it is Enzo Biochem's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Enzo Biochem wasn't profitable at an EBIT level, but managed to grow its revenue by 5.4%, to US$84m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Enzo Biochem?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Enzo Biochem had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$19m and booked a US$21m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$34.3m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the 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 example Enzo Biochem has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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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