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

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. Importantly, CymaBay Therapeutics, Inc. (NASDAQ:CBAY) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for CymaBay Therapeutics

What Is CymaBay Therapeutics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 CymaBay Therapeutics had US$78.7m of debt, an increase on none, over one year. However, it does have US$188.6m in cash offsetting this, leading to net cash of US$109.9m.

How Healthy Is CymaBay Therapeutics' Balance Sheet?

The latest balance sheet data shows that CymaBay Therapeutics had liabilities of US$14.0m due within a year, and liabilities of US$79.2m falling due after that. Offsetting these obligations, it had cash of US$188.6m as well as receivables valued at US$69.0k due within 12 months. So it actually has US$95.4m more liquid assets than total liabilities.

This surplus liquidity suggests that CymaBay Therapeutics' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. 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.

It seems likely shareholders hope that CymaBay Therapeutics can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

So How Risky Is CymaBay Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. 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$74m and booked a US$100m accounting loss. However, it has net cash of US$109.9m, 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. 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. For example CymaBay Therapeutics has 4 warning signs (and 1 which makes us a bit uncomfortable) 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.