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SCYNEXIS (NASDAQ:SCYX) Has Debt But No Earnings; Should You Worry?

·4 min read

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, SCYNEXIS, Inc. (NASDAQ:SCYX) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for SCYNEXIS

How Much Debt Does SCYNEXIS Carry?

As you can see below, at the end of December 2020, SCYNEXIS had US$13.8m of debt, up from US$8.32m a year ago. Click the image for more detail. But on the other hand it also has US$93.0m in cash, leading to a US$79.2m net cash position.

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

How Healthy Is SCYNEXIS' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SCYNEXIS had liabilities of US$26.4m due within 12 months and liabilities of US$53.4m due beyond that. On the other hand, it had cash of US$93.0m and US$2.88m worth of receivables due within a year. So it can boast US$16.1m more liquid assets than total liabilities.

This surplus suggests that SCYNEXIS has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that SCYNEXIS 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 it is future earnings, more than anything, that will determine SCYNEXIS's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Given it has no significant operating revenue at the moment, shareholders will be hoping SCYNEXIS can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is SCYNEXIS?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months SCYNEXIS lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$49m of cash and made a loss of US$55m. With only US$79.2m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for SCYNEXIS you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.