Cyclerion Therapeutics (NASDAQ:CYCN) 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 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. As with many other companies Cyclerion Therapeutics, Inc. (NASDAQ:CYCN) makes use of debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Cyclerion Therapeutics
How Much Debt Does Cyclerion Therapeutics Carry?
The chart below, which you can click on for greater detail, shows that Cyclerion Therapeutics had US$3.51m in debt in June 2021; about the same as the year before. However, its balance sheet shows it holds US$70.4m in cash, so it actually has US$66.9m net cash.
A Look At Cyclerion Therapeutics' Liabilities
According to the balance sheet data, Cyclerion Therapeutics had liabilities of US$10.5m due within 12 months, but no longer term liabilities. Offsetting this, it had US$70.4m in cash and US$127.0k in receivables that were due within 12 months. So it can boast US$60.0m more liquid assets than total liabilities.
This surplus liquidity suggests that Cyclerion Therapeutics' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Cyclerion 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 it is Cyclerion Therapeutics's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.
In the last year Cyclerion Therapeutics had a loss before interest and tax, and actually shrunk its revenue by 23%, to US$3.6m. That makes us nervous, to say the least.
So How Risky Is Cyclerion Therapeutics?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year Cyclerion Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$49m of cash and made a loss of US$68m. Given it only has net cash of US$66.9m, the company may need to raise more capital if it doesn't reach break-even 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. For instance, we've identified 3 warning signs for Cyclerion Therapeutics that you should be aware of.
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.
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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