Dynavax Technologies (NASDAQ:DVAX) Seems To Use Debt Rather Sparingly

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Dynavax Technologies Corporation (NASDAQ:DVAX) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Dynavax Technologies

What Is Dynavax Technologies's Net Debt?

The chart below, which you can click on for greater detail, shows that Dynavax Technologies had US$221.3m in debt in September 2022; about the same as the year before. However, it does have US$586.5m in cash offsetting this, leading to net cash of US$365.2m.

How Strong Is Dynavax Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Dynavax Technologies had liabilities of US$244.1m due within 12 months and liabilities of US$254.7m due beyond that. On the other hand, it had cash of US$586.5m and US$202.4m worth of receivables due within a year. So it can boast US$290.1m more liquid assets than total liabilities.

This excess liquidity suggests that Dynavax Technologies is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Dynavax Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!

Even more impressive was the fact that Dynavax Technologies grew its EBIT by 632% over twelve months. That boost will make it even easier to pay down debt going forward. 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 Dynavax Technologies'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Dynavax Technologies has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last two years, Dynavax Technologies recorded free cash flow worth a fulsome 94% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Dynavax Technologies has US$365.2m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$140m, being 94% of its EBIT. The bottom line is that we do not find Dynavax Technologies's debt levels at all concerning. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with Dynavax Technologies (including 1 which makes us a bit uncomfortable) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.