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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Dynavax Technologies Corporation (NASDAQ:DVAX) 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Dynavax Technologies's Net Debt?

The chart below, which you can click on for greater detail, shows that Dynavax Technologies had US$223.0m in debt in March 2024; about the same as the year before. However, its balance sheet shows it holds US$723.5m in cash, so it actually has US$500.6m net cash.

How Healthy Is Dynavax Technologies' Balance Sheet?

According to the last reported balance sheet, Dynavax Technologies had liabilities of US$56.0m due within 12 months, and liabilities of US$312.1m due beyond 12 months. Offsetting this, it had US$723.5m in cash and US$48.3m in receivables that were due within 12 months. So it can boast US$403.8m more liquid assets than total liabilities.

It's good to see that Dynavax Technologies has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Dynavax Technologies 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 it is future earnings, more than anything, that will determine Dynavax Technologies'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.

Over 12 months, Dynavax Technologies made a loss at the EBIT level, and saw its revenue drop to US$236m, which is a fall of 64%. To be frank that doesn't bode well.

So How Risky Is Dynavax Technologies?

While Dynavax Technologies lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$9.2m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. To that end, you should be aware of the 1 warning sign we've spotted with Dynavax Technologies .

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.

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