Is Celcuity (NASDAQ:CELC) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Celcuity Inc. (NASDAQ:CELC) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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 Celcuity

What Is Celcuity's Debt?

As you can see below, at the end of September 2021, Celcuity had US$14.4m of debt, up from none a year ago. Click the image for more detail. But it also has US$90.4m in cash to offset that, meaning it has US$76.0m net cash.

How Healthy Is Celcuity's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Celcuity had liabilities of US$2.82m due within 12 months and liabilities of US$14.5m due beyond that. Offsetting this, it had US$90.4m in cash and US$356.3k in receivables that were due within 12 months. So it can boast US$73.4m more liquid assets than total liabilities.

This surplus strongly suggests that Celcuity has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Celcuity 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 Celcuity'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.

Given its lack of meaningful operating revenue, Celcuity shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Celcuity?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Celcuity lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$16m and booked a US$25m accounting loss. But at least it has US$76.0m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 4 warning signs for Celcuity (1 is significant!) that you should be aware of before investing here.

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.