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.' 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 Cryoport, Inc. (NASDAQ:CYRX) does use debt in its business. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Cryoport's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2021 Cryoport had US$116.4m of debt, an increase on US$111.2m, over one year. But it also has US$349.5m in cash to offset that, meaning it has US$233.0m net cash.
A Look At Cryoport's Liabilities
The latest balance sheet data shows that Cryoport had liabilities of US$41.1m due within a year, and liabilities of US$136.1m falling due after that. Offsetting this, it had US$349.5m in cash and US$38.5m in receivables that were due within 12 months. So it actually has US$210.8m more liquid assets than total liabilities.
This surplus suggests that Cryoport has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Cryoport reported revenue of US$215m, which is a gain of 442%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!
So How Risky Is Cryoport?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Cryoport lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$25m and booked a US$76m accounting loss. But the saving grace is the US$233.0m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Importantly, Cryoport's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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 2 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.
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