CymaBay Therapeutics (NASDAQ:CBAY) Has Debt But No Earnings; Should You Worry?

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 note that CymaBay Therapeutics, Inc. (NASDAQ:CBAY) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for CymaBay Therapeutics

What Is CymaBay Therapeutics's Net Debt?

As you can see below, at the end of September 2022, CymaBay Therapeutics had US$86.2m of debt, up from US$23.3m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$153.4m in cash, so it actually has US$67.3m net cash.

How Healthy Is CymaBay Therapeutics' Balance Sheet?

According to the last reported balance sheet, CymaBay Therapeutics had liabilities of US$12.7m due within 12 months, and liabilities of US$86.4m due beyond 12 months. Offsetting this, it had US$153.4m in cash and US$69.0k in receivables that were due within 12 months. So it actually has US$54.4m more liquid assets than total liabilities.

This surplus suggests that CymaBay Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, CymaBay Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if CymaBay Therapeutics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Given it has no significant operating revenue at the moment, shareholders will be hoping CymaBay Therapeutics can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is CymaBay Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months CymaBay Therapeutics lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$80m and booked a US$106m accounting loss. But at least it has US$67.3m on the balance sheet to spend on growth, near-term. 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for CymaBay Therapeutics (of which 1 is concerning!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.