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

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. As with many other companies Chimerix, Inc. (NASDAQ:CMRX) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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.

See our latest analysis for Chimerix

What Is Chimerix's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Chimerix had US$14.0m of debt, an increase on none, over one year. But on the other hand it also has US$122.6m in cash, leading to a US$108.6m net cash position.

How Healthy Is Chimerix's Balance Sheet?

According to the last reported balance sheet, Chimerix had liabilities of US$26.3m due within 12 months, and liabilities of US$2.53m due beyond 12 months. Offsetting this, it had US$122.6m in cash and US$53.0k in receivables that were due within 12 months. So it can boast US$93.8m more liquid assets than total liabilities.

It's good to see that Chimerix has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Chimerix 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.

Over 12 months, Chimerix made a loss at the EBIT level, and saw its revenue drop to US$3.1m, which is a fall of 72%. That makes us nervous, to say the least.

So How Risky Is Chimerix?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Chimerix had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$75m and booked a US$145m accounting loss. However, it has net cash of US$108.6m, 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Chimerix is showing 3 warning signs in our investment analysis , you should know about...

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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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.