Cerus (NASDAQ:CERS) 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Cerus Corporation (NASDAQ:CERS) does use debt in its business. But the real question is whether this debt is making the company risky.
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Cerus
How Much Debt Does Cerus Carry?
As you can see below, Cerus had US$44.5m of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. But it also has US$135.1m in cash to offset that, meaning it has US$90.6m net cash.
How Strong Is Cerus's Balance Sheet?
The latest balance sheet data shows that Cerus had liabilities of US$46.2m due within a year, and liabilities of US$57.9m falling due after that. On the other hand, it had cash of US$135.1m and US$17.5m worth of receivables due within a year. So it can boast US$48.5m more liquid assets than total liabilities.
This surplus suggests that Cerus has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Cerus 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 Cerus'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, Cerus reported revenue of US$85m, which is a gain of 20%, 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 Cerus?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Cerus 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$42m and booked a US$62m accounting loss. But at least it has US$90.6m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Cerus may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Cerus , and understanding them should be part of your investment process.
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.
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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