We Think Dynavax Technologies (NASDAQ:DVAX) Can Manage Its Debt With Ease

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Dynavax Technologies Corporation (NASDAQ:DVAX) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. 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, 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.

See 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$221.6m in debt in December 2022; about the same as the year before. But on the other hand it also has US$624.4m in cash, leading to a US$402.8m net cash position.

A Look At Dynavax Technologies' Liabilities

Zooming in on the latest balance sheet data, we can see that Dynavax Technologies had liabilities of US$150.1m due within 12 months and liabilities of US$254.8m due beyond that. Offsetting this, it had US$624.4m in cash and US$218.8m in receivables that were due within 12 months. So it actually has US$438.4m more liquid assets than total liabilities.

This luscious liquidity implies that Dynavax Technologies' balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Dynavax Technologies has more cash than debt is arguably a good indication that it can manage its debt safely.

Better yet, Dynavax Technologies grew its EBIT by 126% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Dynavax Technologies may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last two years, Dynavax Technologies recorded free cash flow worth a fulsome 81% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Dynavax Technologies has net cash of US$402.8m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$56m, being 81% of its EBIT. The bottom line is that we do not find Dynavax Technologies's debt levels at all concerning. 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. 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.