ChemoCentryx (NASDAQ:CCXI) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, ChemoCentryx, Inc. (NASDAQ:CCXI) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for ChemoCentryx

What Is ChemoCentryx's Net Debt?

As you can see below, ChemoCentryx had US$24.9m of debt, at March 2022, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$340.6m in cash offsetting this, leading to net cash of US$315.7m.

How Strong Is ChemoCentryx's Balance Sheet?

We can see from the most recent balance sheet that ChemoCentryx had liabilities of US$68.8m falling due within a year, and liabilities of US$112.9m due beyond that. Offsetting this, it had US$340.6m in cash and US$2.81m in receivables that were due within 12 months. So it can boast US$161.7m more liquid assets than total liabilities.

This short term liquidity is a sign that ChemoCentryx could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, ChemoCentryx 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 ChemoCentryx'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.

Over 12 months, ChemoCentryx made a loss at the EBIT level, and saw its revenue drop to US$27m, which is a fall of 61%. That makes us nervous, to say the least.

So How Risky Is ChemoCentryx?

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 ChemoCentryx lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$54m of cash and made a loss of US$141m. But at least it has US$315.7m 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. For instance, we've identified 2 warning signs for ChemoCentryx that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.