Here's Why Dynavax Technologies (NASDAQ:DVAX) Can Manage Its Debt Responsibly

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. As with many other companies Dynavax Technologies Corporation (NASDAQ:DVAX) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Dynavax Technologies

How Much Debt Does Dynavax Technologies Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Dynavax Technologies had US$220.2m of debt, an increase on US$179.7m, over one year. However, it does have US$414.2m in cash offsetting this, leading to net cash of US$193.9m.

A Look At Dynavax Technologies' Liabilities

According to the last reported balance sheet, Dynavax Technologies had liabilities of US$528.9m due within 12 months, and liabilities of US$323.2m due beyond 12 months. Offsetting these obligations, it had cash of US$414.2m as well as receivables valued at US$252.8m due within 12 months. So its liabilities total US$185.2m more than the combination of its cash and short-term receivables.

Since publicly traded Dynavax Technologies shares are worth a total of US$1.42b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Dynavax Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!

We also note that Dynavax Technologies improved its EBIT from a last year's loss to a positive US$47m. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Dynavax Technologies 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. 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. Happily for any shareholders, Dynavax Technologies actually produced more free cash flow than EBIT over the last year. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing up

While Dynavax Technologies does have more liabilities than liquid assets, it also has net cash of US$193.9m. The cherry on top was that in converted 406% of that EBIT to free cash flow, bringing in US$192m. So we are not troubled with Dynavax Technologies's debt use. 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 Dynavax Technologies is showing 3 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

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. 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.