ChemoCentryx (NASDAQ:CCXI) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

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.' 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 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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for ChemoCentryx

What Is ChemoCentryx's Net Debt?

As you can see below, ChemoCentryx had US$24.5m of debt, at March 2021, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$376.3m in cash, so it actually has US$351.8m net cash.

How Healthy Is ChemoCentryx's Balance Sheet?

The latest balance sheet data shows that ChemoCentryx had liabilities of US$54.7m due within a year, and liabilities of US$83.4m falling due after that. On the other hand, it had cash of US$376.3m and US$10.1m worth of receivables due within a year. So it actually has US$248.3m more liquid assets than total liabilities.

It's good to see that ChemoCentryx has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. 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 ultimately the future profitability of the business will decide if ChemoCentryx 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.

In the last year ChemoCentryx wasn't profitable at an EBIT level, but managed to grow its revenue by 105%, to US$69m. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is ChemoCentryx?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that ChemoCentryx had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$101m of cash and made a loss of US$63m. However, it has net cash of US$351.8m, so it has a bit of time before it will need more capital. The good news for shareholders is that ChemoCentryx has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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, we've discovered 3 warning signs for ChemoCentryx that you should be aware of before investing here.

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.

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This article by Simply Wall St is general in nature. 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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