The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. We can see that Cryoport, Inc. (NASDAQ:CYRX) does use debt in its business. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
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. 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 examine debt levels, we first consider both cash and debt levels, together.
What Is Cryoport's Net Debt?
The image below, which you can click on for greater detail, shows that Cryoport had debt of US$380.6m at the end of March 2024, a reduction from US$407.8m over a year. But on the other hand it also has US$448.5m in cash, leading to a US$68.0m net cash position.
How Healthy Is Cryoport's Balance Sheet?
We can see from the most recent balance sheet that Cryoport had liabilities of US$49.0m falling due within a year, and liabilities of US$421.7m due beyond that. On the other hand, it had cash of US$448.5m and US$41.3m worth of receivables due within a year. So it can boast US$19.1m more liquid assets than total liabilities.
This short term liquidity is a sign that Cryoport could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Cryoport 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 ultimately the future profitability of the business will decide if Cryoport 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 Cryoport had a loss before interest and tax, and actually shrunk its revenue by 9.2%, to US$225m. That's not what we would hope to see.
So How Risky Is Cryoport?
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 Cryoport lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$46m of cash and made a loss of US$121m. While this does make the company a bit risky, it's important to remember it has net cash of US$68.0m. That means it could keep spending at its current rate for more than two years. 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. However, not all investment risk resides within the balance sheet - far from it. For example - Cryoport has 3 warning signs we think 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.
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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.