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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. We can see that Cerus Corporation (NASDAQ:CERS) does use debt in its business. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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. 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 Cerus
What Is Cerus's Debt?
You can click the graphic below for the historical numbers, but it shows that as of March 2022 Cerus had US$69.8m of debt, an increase on US$64.6m, over one year. But it also has US$108.6m in cash to offset that, meaning it has US$38.8m net cash.
A Look At Cerus' Liabilities
The latest balance sheet data shows that Cerus had liabilities of US$66.7m due within a year, and liabilities of US$74.8m falling due after that. On the other hand, it had cash of US$108.6m and US$25.6m worth of receivables due within a year. So its liabilities total US$7.29m more than the combination of its cash and short-term receivables.
This state of affairs indicates that Cerus' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$934.0m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Cerus also has more cash than debt, so we're pretty confident 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 Cerus 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 Cerus wasn't profitable at an EBIT level, but managed to grow its revenue by 50%, to US$145m. With any luck the company will be able to grow its way to profitability.