Is Corbus Pharmaceuticals Holdings (NASDAQ:CRBP) Weighed On By Its Debt Load?

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 Corbus Pharmaceuticals Holdings, Inc. (NASDAQ:CRBP) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Corbus Pharmaceuticals Holdings

What Is Corbus Pharmaceuticals Holdings's Net Debt?

As you can see below, at the end of September 2020, Corbus Pharmaceuticals Holdings had US$17.9m of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds US$81.9m in cash, so it actually has US$64.0m net cash.

How Strong Is Corbus Pharmaceuticals Holdings' Balance Sheet?

According to the last reported balance sheet, Corbus Pharmaceuticals Holdings had liabilities of US$41.4m due within 12 months, and liabilities of US$25.2m due beyond 12 months. Offsetting these obligations, it had cash of US$81.9m as well as receivables valued at US$960.1k due within 12 months. So it can boast US$16.2m more liquid assets than total liabilities.

This short term liquidity is a sign that Corbus Pharmaceuticals Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Corbus Pharmaceuticals Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Corbus Pharmaceuticals Holdings'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.

Over 12 months, Corbus Pharmaceuticals Holdings made a loss at the EBIT level, and saw its revenue drop to US$5.9m, which is a fall of 84%. That makes us nervous, to say the least.

So How Risky Is Corbus Pharmaceuticals Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Corbus Pharmaceuticals Holdings lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$106m of cash and made a loss of US$129m. Given it only has net cash of US$64.0m, the company may need to raise more capital if it doesn't reach break-even soon. 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. For example, we've discovered 4 warning signs for Corbus Pharmaceuticals Holdings (1 can't be ignored!) that you should be aware of before investing here.

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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