Does SCYNEXIS (NASDAQ:SCYX) Have A Healthy Balance Sheet?

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. As with many other companies SCYNEXIS, Inc. (NASDAQ:SCYX) makes use of debt. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for SCYNEXIS

What Is SCYNEXIS's Net Debt?

You can click the graphic below for the historical numbers, but it shows that SCYNEXIS had US$11.6m of debt in September 2023, down from US$45.0m, one year before. However, its balance sheet shows it holds US$88.1m in cash, so it actually has US$76.5m net cash.

How Healthy Is SCYNEXIS' Balance Sheet?

According to the last reported balance sheet, SCYNEXIS had liabilities of US$16.8m due within 12 months, and liabilities of US$39.8m due beyond 12 months. Offsetting these obligations, it had cash of US$88.1m as well as receivables valued at US$23.9m due within 12 months. So it actually has US$55.4m more liquid assets than total liabilities.

This excess liquidity is a great indication that SCYNEXIS' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, SCYNEXIS boasts net cash, so it's fair to say it does not have a heavy debt load!

Although SCYNEXIS made a loss at the EBIT level, last year, it was also good to see that it generated US$73m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine SCYNEXIS'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. SCYNEXIS 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 most recent year, SCYNEXIS recorded free cash flow worth 62% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case SCYNEXIS has US$76.5m in net cash and a decent-looking balance sheet. So is SCYNEXIS's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example SCYNEXIS has 4 warning signs (and 1 which can't be ignored) we think you should know about.

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.

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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.