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Aldeyra Therapeutics (NASDAQ:ALDX) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 can see that Aldeyra Therapeutics, Inc. (NASDAQ:ALDX) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Aldeyra Therapeutics

What Is Aldeyra Therapeutics's Net Debt?

As you can see below, Aldeyra Therapeutics had US$15.4m of debt, at September 2021, which is about the same as the year before. You can click the chart for greater detail. But it also has US$116.4m in cash to offset that, meaning it has US$100.9m net cash.

debt-equity-history-analysis
debt-equity-history-analysis

A Look At Aldeyra Therapeutics' Liabilities

According to the last reported balance sheet, Aldeyra Therapeutics had liabilities of US$11.9m due within 12 months, and liabilities of US$15.6m due beyond 12 months. Offsetting these obligations, it had cash of US$116.4m as well as receivables valued at US$125.0m due within 12 months. So it can boast US$213.8m more liquid assets than total liabilities.

This luscious liquidity implies that Aldeyra Therapeutics' balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Aldeyra Therapeutics 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 ultimately the future profitability of the business will decide if Aldeyra Therapeutics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

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

So How Risky Is Aldeyra Therapeutics?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Aldeyra Therapeutics lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$39m and booked a US$53m accounting loss. With only US$100.9m on the balance sheet, it would appear that its going to need to raise capital again 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Aldeyra Therapeutics (of which 1 doesn't sit too well with us!) you should know about.

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.

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