NASDAQ:DVAX) does have debt on its balance sheet. But is this debt a concern to shareholders?” data-reactid=”28″>Legendary fund manager Li Lu (who Charlie Munger backed) once said, ‘The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ So it seems the smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess how risky a company is. We note that Dynavax Technologies Corporation (NASDAQ:DVAX) does have debt on its balance sheet. But is this debt a concern to shareholders?
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. 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. 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. The first step when considering a company’s debt levels is to consider its cash and debt together.
View our latest analysis for Dynavax Technologies ” data-reactid=”31″> View our latest analysis for Dynavax Technologies
How Much Debt Does Dynavax Technologies Carry?
As you can see below, Dynavax Technologies had US$179.7m of debt, at June 2020, which is about the same as the year before. You can click the chart for greater detail. But it also has US$200.7m in cash to offset that, meaning it has US$21.1m net cash.
How Strong Is Dynavax Technologies’s Balance Sheet?
We can see from the most recent balance sheet that Dynavax Technologies had liabilities of US$53.2m falling due within a year, and liabilities of US$217.8m due beyond that. Offsetting these obligations, it had cash of US$200.7m as well as receivables valued at US$903.0k due within 12 months. So it has liabilities totalling US$69.4m more than its cash and near-term receivables, combined.
report showing analyst profit forecasts.” data-reactid=”52″>Of course, Dynavax Technologies has a market capitalization of US$534.4m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Dynavax Technologies 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 Dynavax Technologies’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.
Over 12 months, Dynavax Technologies reported revenue of US$35m, which is a gain of 66%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.
So How Risky Is Dynavax Technologies?
3 warning signs for Dynavax Technologies that you should be aware of before investing here.” data-reactid=”55″>We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Dynavax Technologies had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$114.7m and booked a US$137.7m accounting loss. Given it only has net cash of US$21.1m, the company may need to raise more capital if it doesn’t reach break-even soon. With very solid revenue growth in the last year, Dynavax Technologies may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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 3 warning signs for Dynavax Technologies that you should be aware of before investing here.
list of growing businesses that have net cash on the balance sheet.” data-reactid=”60″>If you’re interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”61″>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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected].
