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

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.' 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, Enzo Biochem, Inc. (NYSE:ENZ) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Enzo Biochem

How Much Debt Does Enzo Biochem Carry?

As you can see below, Enzo Biochem had US$4.33m of debt at April 2022, down from US$11.5m a year prior. But on the other hand it also has US$31.1m in cash, leading to a US$26.8m net cash position.

How Healthy Is Enzo Biochem's Balance Sheet?

The latest balance sheet data shows that Enzo Biochem had liabilities of US$24.7m due within a year, and liabilities of US$17.0m falling due after that. On the other hand, it had cash of US$31.1m and US$11.8m worth of receivables due within a year. So it actually has US$1.17m more liquid assets than total liabilities.

Having regard to Enzo Biochem's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$115.5m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Enzo Biochem has more cash than debt is arguably a good indication that it can manage its debt safely. 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Enzo Biochem's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

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 we do note that Enzo Biochem had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$12m and booked a US$6.6m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$26.8m. 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 instance, we've identified 1 warning sign for Enzo Biochem that 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.