Is Dynavax Technologies (NASDAQ:DVAX) Using Debt In A Risky Way?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. As with many other companies Dynavax Technologies Corporation (NASDAQ:DVAX) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Dynavax Technologies

What Is Dynavax Technologies's Debt?

The chart below, which you can click on for greater detail, shows that Dynavax Technologies had US$223.6m in debt in September 2024; about the same as the year before. However, it does have US$764.0m in cash offsetting this, leading to net cash of US$540.4m.

How Healthy Is Dynavax Technologies' Balance Sheet?

We can see from the most recent balance sheet that Dynavax Technologies had liabilities of US$70.0m falling due within a year, and liabilities of US$310.5m due beyond that. Offsetting this, it had US$764.0m in cash and US$76.0m in receivables that were due within 12 months. So it actually has US$459.4m more liquid assets than total liabilities.

This excess liquidity suggests that Dynavax Technologies is taking a careful approach to debt. 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! When analysing debt levels, the balance sheet is the obvious place to start. 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.

In the last year Dynavax Technologies had a loss before interest and tax, and actually shrunk its revenue by 28%, to US$261m. That makes us nervous, to say the least.

So How Risky Is Dynavax Technologies?

While Dynavax Technologies lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$20m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Dynavax Technologies that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.