Is Calyxt (NASDAQ:CLXT) Using Too Much Debt?

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.' 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 Calyxt, Inc. (NASDAQ:CLXT) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Calyxt

What Is Calyxt's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2020 Calyxt had US$1.52m of debt, an increase on none, over one year. But on the other hand it also has US$33.8m in cash, leading to a US$32.3m net cash position.

How Healthy Is Calyxt's Balance Sheet?

According to the last reported balance sheet, Calyxt had liabilities of US$4.65m due within 12 months, and liabilities of US$19.8m due beyond 12 months. Offsetting these obligations, it had cash of US$33.8m as well as receivables valued at US$2.41m due within 12 months. So it actually has US$11.8m more liquid assets than total liabilities.

This short term liquidity is a sign that Calyxt could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Calyxt has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Calyxt's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Calyxt wasn't profitable at an EBIT level, but managed to grow its revenue by 1,721%, to US$11m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Calyxt?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Calyxt had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$44m and booked a US$45m accounting loss. But at least it has US$32.3m on the balance sheet to spend on growth, near-term. Importantly, Calyxt's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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 instance, we've identified 3 warning signs for Calyxt (1 is a bit concerning) you should be aware of.

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. 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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