Is Aldeyra Therapeutics (NASDAQ:ALDX) Using Too Much Debt?

Warren Buffett famously said, '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 can see that Aldeyra Therapeutics, Inc. (NASDAQ:ALDX) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Aldeyra Therapeutics

What Is Aldeyra Therapeutics's Debt?

You can click the graphic below for the historical numbers, but it shows that Aldeyra Therapeutics had US$15.2m of debt in March 2024, down from US$15.9m, one year before. But it also has US$83.0m in cash to offset that, meaning it has US$67.8m net cash.

How Healthy Is Aldeyra Therapeutics' Balance Sheet?

The latest balance sheet data shows that Aldeyra Therapeutics had liabilities of US$21.7m due within a year, and liabilities of US$6.21m falling due after that. Offsetting this, it had US$83.0m in cash and US$50.0m in receivables that were due within 12 months. So it actually has US$105.2m more liquid assets than total liabilities.

This surplus strongly suggests that Aldeyra Therapeutics has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Aldeyra Therapeutics 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 it is future earnings, more than anything, that will determine Aldeyra Therapeutics's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Since Aldeyra Therapeutics doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is Aldeyra Therapeutics?

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 Aldeyra Therapeutics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$31m of cash and made a loss of US$30m. But the saving grace is the US$67.8m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example Aldeyra Therapeutics has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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.

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