Is Cidara Therapeutics (NASDAQ:CDTX) Using Too Much Debt?
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.' 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 note that Cidara Therapeutics, Inc. (NASDAQ:CDTX) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
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. If things get really bad, the lenders can take control of the business. 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. 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.
Check out our latest analysis for Cidara Therapeutics
What Is Cidara Therapeutics's Net Debt?
As you can see below, Cidara Therapeutics had US$5.67m of debt at March 2021, down from US$9.97m a year prior. However, it does have US$42.9m in cash offsetting this, leading to net cash of US$37.2m.
How Strong Is Cidara Therapeutics' Balance Sheet?
The latest balance sheet data shows that Cidara Therapeutics had liabilities of US$40.0m due within a year, and liabilities of US$12.4m falling due after that. On the other hand, it had cash of US$42.9m and US$11.0k worth of receivables due within a year. So its liabilities total US$9.44m more than the combination of its cash and short-term receivables.
Of course, Cidara Therapeutics has a market capitalization of US$82.6m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Cidara Therapeutics also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Cidara Therapeutics 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 Cidara Therapeutics had a loss before interest and tax, and actually shrunk its revenue by 49%, to US$12m. To be frank that doesn't bode well.
So How Risky Is Cidara Therapeutics?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Cidara Therapeutics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$41m of cash and made a loss of US$76m. However, it has net cash of US$37.2m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 4 warning signs we've spotted with Cidara Therapeutics .
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
This article by Simply Wall St is general in nature. 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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