Does Chimerix (NASDAQ:CMRX) Have A Healthy Balance Sheet?

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.' 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. We can see that Chimerix, Inc. (NASDAQ:CMRX) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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, 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.

See our latest analysis for Chimerix

What Is Chimerix's Net Debt?

As you can see below, at the end of March 2021, Chimerix had US$14.0m of debt, up from none a year ago. Click the image for more detail. However, it does have US$145.0m in cash offsetting this, leading to net cash of US$131.0m.

How Healthy Is Chimerix's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Chimerix had liabilities of US$22.2m due within 12 months and liabilities of US$2.75m due beyond that. Offsetting these obligations, it had cash of US$145.0m as well as receivables valued at US$482.0k due within 12 months. So it actually has US$120.5m more liquid assets than total liabilities.

This surplus suggests that Chimerix is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Chimerix 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 Chimerix'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.

Over 12 months, Chimerix made a loss at the EBIT level, and saw its revenue drop to US$5.6m, which is a fall of 51%. To be frank that doesn't bode well.

So How Risky Is Chimerix?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Chimerix had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$63m of cash and made a loss of US$131m. However, it has net cash of US$131.0m, so it has a bit of time before it will need more capital. 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. 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 2 warning signs we've spotted with Chimerix .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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