U.S. Markets closed

Is Enzo Biochem (NYSE:ENZ) Using Debt In A Risky Way?

Simply Wall St

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 Enzo Biochem, Inc. (NYSE:ENZ) makes use of debt. 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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Enzo Biochem

How Much Debt Does Enzo Biochem Carry?

You can click the graphic below for the historical numbers, but it shows that as of April 2019 Enzo Biochem had US$4.21m of debt, an increase on US$614.0k, over one year. However, its balance sheet shows it holds US$64.1m in cash, so it actually has US$59.8m net cash.

NYSE:ENZ Historical Debt, August 15th 2019

How Healthy Is Enzo Biochem's Balance Sheet?

We can see from the most recent balance sheet that Enzo Biochem had liabilities of US$15.3m falling due within a year, and liabilities of US$4.73m due beyond that. Offsetting these obligations, it had cash of US$64.1m as well as receivables valued at US$11.4m due within 12 months. So it actually has US$55.5m more liquid assets than total liabilities.

This surplus liquidity suggests that Enzo Biochem's 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 just as strong as misogynists are weak. Succinctly put, Enzo Biochem 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 Enzo Biochem'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.

In the last year Enzo Biochem actually shrunk its revenue by 19%, to US$87m. That's not what we would hope to see.

So How Risky Is Enzo Biochem?

While Enzo Biochem lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$2.1m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Enzo Biochem insider transactions.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.