Is Celcuity (NASDAQ:CELC) Using Debt Sensibly?

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. We note that Celcuity Inc. (NASDAQ:CELC) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Celcuity's Net Debt?

As you can see below, at the end of December 2024, Celcuity had US$97.7m of debt, up from US$37.0m a year ago. Click the image for more detail. But it also has US$235.1m in cash to offset that, meaning it has US$137.4m net cash.

A Look At Celcuity's Liabilities

The latest balance sheet data shows that Celcuity had liabilities of US$31.7m due within a year, and liabilities of US$97.8m falling due after that. Offsetting these obligations, it had cash of US$235.1m as well as receivables valued at US$1.60m due within 12 months. So it can boast US$107.2m more liquid assets than total liabilities.

This surplus suggests that Celcuity is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Celcuity has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. 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.

See our latest analysis for Celcuity

Since Celcuity doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is Celcuity?

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 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$84m and booked a US$112m accounting loss. But the saving grace is the US$137.4m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Celcuity (of which 1 can't be ignored!) you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.