Is Dynavax Technologies (NASDAQ:DVAX) A Risky Investment?

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.' 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 note that Dynavax Technologies Corporation (NASDAQ:DVAX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Dynavax Technologies

What Is Dynavax Technologies's Net Debt?

As you can see below, Dynavax Technologies had US$222.7m of debt, at December 2023, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$742.3m in cash, leading to a US$519.6m net cash position.

How Strong Is Dynavax Technologies' Balance Sheet?

According to the last reported balance sheet, Dynavax Technologies had liabilities of US$62.2m due within 12 months, and liabilities of US$312.8m due beyond 12 months. Offsetting this, it had US$742.3m in cash and US$45.9m in receivables that were due within 12 months. So it actually has US$413.2m more liquid assets than total liabilities.

It's good to see that Dynavax Technologies has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any 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! 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.

In the last year Dynavax Technologies had a loss before interest and tax, and actually shrunk its revenue by 68%, to US$232m. To be frank that doesn't bode well.

So How Risky Is Dynavax Technologies?

Although Dynavax Technologies had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$96m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. Case in point: We've spotted 1 warning sign for Dynavax Technologies you should be aware of.

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.