Does Gamida Cell (NASDAQ:GMDA) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Gamida Cell Ltd. (NASDAQ:GMDA) 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 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Gamida Cell

What Is Gamida Cell's Debt?

As you can see below, at the end of September 2021, Gamida Cell had US$69.3m of debt, up from none a year ago. Click the image for more detail. But it also has US$120.8m in cash to offset that, meaning it has US$51.5m net cash.

How Strong Is Gamida Cell's Balance Sheet?

According to the last reported balance sheet, Gamida Cell had liabilities of US$23.7m due within 12 months, and liabilities of US$95.5m due beyond 12 months. Offsetting these obligations, it had cash of US$120.8m as well as receivables valued at US$103.0k due within 12 months. So these liquid assets roughly match the total liabilities.

Having regard to Gamida Cell's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$188.6m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Gamida Cell 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 Gamida Cell'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.

Since Gamida Cell doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is Gamida Cell?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Gamida Cell had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$83m and booked a US$91m accounting loss. Given it only has net cash of US$51.5m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 Gamida Cell (including 1 which is concerning) .

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.