Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Savara Inc. (NASDAQ:SVRA) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for Savara
How Much Debt Does Savara Carry?
As you can see below, Savara had US$25.2m of debt, at March 2021, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$192.9m in cash, leading to a US$167.7m net cash position.
A Look At Savara's Liabilities
Zooming in on the latest balance sheet data, we can see that Savara had liabilities of US$7.21m due within 12 months and liabilities of US$25.3m due beyond that. Offsetting these obligations, it had cash of US$192.9m as well as receivables valued at US$1.42m due within 12 months. So it can boast US$161.8m more liquid assets than total liabilities.
This surplus strongly suggests that Savara has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Savara boasts net cash, so it's fair to say it does not have a heavy debt load! 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 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.
Since Savara 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 Savara?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Savara lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$36m of cash and made a loss of US$44m. But at least it has US$167.7m on the balance sheet to spend on growth, near-term. 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Savara (2 are potentially serious!) that you should be aware of before investing here.
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. 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.
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About NasdaqGS:SVRA
Savara
A clinical stage biopharmaceutical company, focuses on rare respiratory diseases.
Flawless balance sheet low.
