Is SCYNEXIS (NASDAQ:SCYX) Using Debt In A Risky Way?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that SCYNEXIS, Inc. (NASDAQ:SCYX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for SCYNEXIS

How Much Debt Does SCYNEXIS Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 SCYNEXIS had US$38.6m of debt, an increase on US$10.7m, over one year. However, its balance sheet shows it holds US$100.1m in cash, so it actually has US$61.5m net cash.

How Strong Is SCYNEXIS' Balance Sheet?

We can see from the most recent balance sheet that SCYNEXIS had liabilities of US$13.2m falling due within a year, and liabilities of US$59.0m due beyond that. Offsetting these obligations, it had cash of US$100.1m as well as receivables valued at US$29.0k due within 12 months. So it actually has US$27.9m more liquid assets than total liabilities.

It's good to see that SCYNEXIS 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, SCYNEXIS 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 SCYNEXIS'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.

In the last year SCYNEXIS managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is SCYNEXIS?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year SCYNEXIS 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$46m and booked a US$46m accounting loss. Given it only has net cash of US$61.5m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 example, we've discovered 2 warning signs for SCYNEXIS (1 is concerning!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.