Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Delcath Systems, Inc. (NASDAQ:DCTH) does carry debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Delcath Systems's Net Debt?

As you can see below, Delcath Systems had US$4.49m of debt at June 2024, down from US$9.76m a year prior. However, its balance sheet shows it holds US$19.9m in cash, so it actually has US$15.4m net cash.

How Strong Is Delcath Systems' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Delcath Systems had liabilities of US$12.3m due within 12 months and liabilities of US$1.62m due beyond that. On the other hand, it had cash of US$19.9m and US$3.75m worth of receivables due within a year. So it actually has US$9.74m more liquid assets than total liabilities.

This short term liquidity is a sign that Delcath Systems could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Delcath Systems boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Delcath Systems'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.

Over 12 months, Delcath Systems reported revenue of US$12m, which is a gain of 350%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Delcath Systems?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Delcath Systems had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$32m and booked a US$56m accounting loss. With only US$15.4m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, Delcath Systems's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. To that end, you should learn about the 2 warning signs we've spotted with Delcath Systems (including 1 which is a bit concerning) .

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.