Health Check: How Prudently Does Enzo Biochem (NYSE:ENZ) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 the real question is whether this debt is making the company risky.

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. 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, 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$11.5m of debt, at April 2021, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$45.0m in cash, so it actually has US$33.5m net cash.

A Look At Enzo Biochem's Liabilities

We can see from the most recent balance sheet that Enzo Biochem had liabilities of US$29.2m falling due within a year, and liabilities of US$19.4m due beyond that. Offsetting these obligations, it had cash of US$45.0m as well as receivables valued at US$11.5m due within 12 months. So it can boast US$7.84m more liquid assets than total liabilities.

This surplus suggests that Enzo Biochem has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Enzo Biochem boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Enzo Biochem will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Enzo Biochem reported revenue of US$112m, which is a gain of 45%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Enzo Biochem?

While Enzo Biochem lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$1.3m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We think its revenue growth of 45% is a good sign. We'd see further strong growth as an optimistic indication. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Enzo Biochem , and understanding them should be part of your investment process.

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.
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