Health Check: How Prudently Does Savara (NASDAQ:SVRA) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Savara Inc. (NASDAQ:SVRA) makes use of debt. But is this debt a concern to shareholders?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Why Does Debt Bring Risk?

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. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Savara's Debt?

The chart below, which you can click on for greater detail, shows that Savara had US$26.6m in debt in December 2024; about the same as the year before. However, it does have US$196.8m in cash offsetting this, leading to net cash of US$170.2m.

How Healthy Is Savara's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Savara had liabilities of US$14.7m due within 12 months and liabilities of US$26.7m due beyond that. On the other hand, it had cash of US$196.8m and US$1.04m worth of receivables due within a year. So it actually has US$156.4m more liquid assets than total liabilities.

It's good to see that Savara has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Savara boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Savara'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.

See our latest analysis for Savara

Given its lack of meaningful operating revenue, Savara shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Savara?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Savara 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$89m and booked a US$96m accounting loss. However, it has net cash of US$170.2m, so it has a bit of time before it will need more capital. 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. We've identified 3 warning signs with Savara (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.

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.