Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Syros Pharmaceuticals, Inc. (NASDAQ:SYRS) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.
How Much Debt Does Syros Pharmaceuticals Carry?
You can click the graphic below for the historical numbers, but it shows that as of September 2021 Syros Pharmaceuticals had US$40.1m of debt, an increase on US$19.7m, over one year. However, its balance sheet shows it holds US$145.6m in cash, so it actually has US$105.5m net cash.
A Look At Syros Pharmaceuticals' Liabilities
Zooming in on the latest balance sheet data, we can see that Syros Pharmaceuticals had liabilities of US$29.9m due within 12 months and liabilities of US$72.1m due beyond that. Offsetting this, it had US$145.6m in cash and US$3.63m in receivables that were due within 12 months. So it can boast US$47.2m more liquid assets than total liabilities.
It's good to see that Syros Pharmaceuticals has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Syros Pharmaceuticals has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Syros Pharmaceuticals 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.
In the last year Syros Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 116%, to US$21m. So its pretty obvious shareholders are hoping for more growth!
So How Risky Is Syros Pharmaceuticals?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Syros Pharmaceuticals lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$108m and booked a US$93m accounting loss. However, it has net cash of US$105.5m, so it has a bit of time before it will need more capital. Importantly, Syros Pharmaceuticals's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Syros Pharmaceuticals that you should be aware of before investing here.
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.
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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.