Is Cidara Therapeutics (NASDAQ:CDTX) 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Cidara Therapeutics, Inc. (NASDAQ:CDTX) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Cidara Therapeutics

What Is Cidara Therapeutics's Debt?

The image below, which you can click on for greater detail, shows that Cidara Therapeutics had debt of US$5.67m at the end of March 2021, a reduction from US$9.97m over a year. But on the other hand it also has US$42.9m in cash, leading to a US$37.2m net cash position.

How Strong Is Cidara Therapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Cidara Therapeutics had liabilities of US$40.0m due within 12 months and liabilities of US$12.4m due beyond that. Offsetting these obligations, it had cash of US$42.9m as well as receivables valued at US$11.0k due within 12 months. So it has liabilities totalling US$9.44m more than its cash and near-term receivables, combined.

Given Cidara Therapeutics has a market capitalization of US$82.6m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Cidara 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 Cidara 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.

In the last year Cidara Therapeutics had a loss before interest and tax, and actually shrunk its revenue by 49%, to US$12m. To be frank that doesn't bode well.

So How Risky Is Cidara Therapeutics?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Cidara Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$41m of cash and made a loss of US$76m. However, it has net cash of US$37.2m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. To that end, you should be aware of the 4 warning signs we've spotted with Cidara Therapeutics .

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.

If you decide to trade Cidara Therapeutics, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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