Does Dynavax Technologies (NASDAQ:DVAX) Have A Healthy Balance Sheet?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Dynavax Technologies Corporation (NASDAQ:DVAX) makes use of debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 Dynavax Technologies
How Much Debt Does Dynavax Technologies Carry?
As you can see below, at the end of March 2022, Dynavax Technologies had US$220.8m of debt, up from US$179.9m a year ago. Click the image for more detail. But on the other hand it also has US$503.2m in cash, leading to a US$282.5m net cash position.
A Look At Dynavax Technologies' Liabilities
Zooming in on the latest balance sheet data, we can see that Dynavax Technologies had liabilities of US$466.2m due within 12 months and liabilities of US$255.3m due beyond that. Offsetting these obligations, it had cash of US$503.2m as well as receivables valued at US$207.8m due within 12 months. So these liquid assets roughly match the total liabilities.
Having regard to Dynavax Technologies' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$1.36b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Dynavax Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!
It was also good to see that despite losing money on the EBIT line last year, Dynavax Technologies turned things around in the last 12 months, delivering and EBIT of US$144m. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Dynavax Technologies 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.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. Dynavax Technologies may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, Dynavax Technologies actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.
Summing up
While it is always sensible to look at a company's total liabilities, it is very reassuring that Dynavax Technologies has US$282.5m in net cash. And it impressed us with free cash flow of US$238m, being 165% of its EBIT. So is Dynavax Technologies's debt a risk? It doesn't seem so to us. 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. For instance, we've identified 4 warning signs for Dynavax Technologies (1 is a bit unpleasant) you should be aware of.
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.
