Is CymaBay Therapeutics (NASDAQ:CBAY) Weighed On By Its Debt Load?

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.' 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. Importantly, CymaBay Therapeutics, Inc. (NASDAQ:CBAY) does carry debt. 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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

View our latest analysis for CymaBay Therapeutics

What Is CymaBay Therapeutics's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2021 CymaBay Therapeutics had debt of US$23.3m, up from none in one year. But it also has US$113.8m in cash to offset that, meaning it has US$90.5m net cash.

How Strong Is CymaBay Therapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CymaBay Therapeutics had liabilities of US$11.7m due within 12 months and liabilities of US$24.1m due beyond that. Offsetting this, it had US$113.8m in cash and US$69.0k in receivables that were due within 12 months. So it actually has US$78.0m more liquid assets than total liabilities.

This surplus suggests that CymaBay Therapeutics is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, CymaBay Therapeutics 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 future earnings, more than anything, that will determine CymaBay Therapeutics's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

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 in the last year CymaBay Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$70m of cash and made a loss of US$79m. However, it has net cash of US$90.5m, so it has a bit of time before it will need more capital. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that CymaBay Therapeutics is showing 4 warning signs in our investment analysis , and 1 of those is potentially serious...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.