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Is ChemoCentryx (NASDAQ:CCXI) Weighed On By Its Debt Load?

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. Importantly, ChemoCentryx, Inc. (NASDAQ:CCXI) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for ChemoCentryx

What Is ChemoCentryx's Net Debt?

As you can see below, ChemoCentryx had US$23.6m of debt, at December 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$264.5m in cash, leading to a US$240.9m net cash position.

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

How Strong Is ChemoCentryx's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ChemoCentryx had liabilities of US$63.0m due within 12 months and liabilities of US$76.5m due beyond that. Offsetting this, it had US$264.5m in cash and US$454.0k in receivables that were due within 12 months. So it can boast US$125.4m more liquid assets than total liabilities.

This surplus suggests that ChemoCentryx has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that ChemoCentryx has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ChemoCentryx can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year ChemoCentryx had a loss before interest and tax, and actually shrunk its revenue by 50%, to US$32m. To be frank that doesn't bode well.

So How Risky Is ChemoCentryx?

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 ChemoCentryx lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$95m of cash and made a loss of US$132m. However, it has net cash of US$240.9m, 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. 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. For instance, we've identified 2 warning signs for ChemoCentryx that you should be aware of.

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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