Dynavax Technologies (NASDAQ:DVAX) could easily take on more debt
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. We can see that Company Dynavax Technologies (NASDAQ:DVAX) uses debt in its business. But the real question is whether this debt makes the business risky.
When is debt dangerous?
Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. If things go really bad, lenders can take over the business. However, a more frequent (but still costly) event is when a company has to issue shares at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first step when considering a company’s debt levels is to consider its cash and debt together.
See our latest analysis for Dynavax Technologies
What is Dynavax Technologies’ debt?
The image below, which you can click on for more details, shows that in March 2022, Dynavax Technologies had $220.8 million in debt, up from $179.9 million in one year. However, he has $503.2 million in cash to offset that, which translates to a net cash of $282.5 million.
How healthy is Dynavax Technologies’ balance sheet?
The latest balance sheet data shows that Dynavax Technologies had liabilities of $466.2 million due within the year, and liabilities of $255.3 million due thereafter. In return, he had $503.2 million in cash and $207.8 million in receivables due within 12 months. Thus, its total liabilities match its short-term liquid assets almost perfectly.
Given the size of Dynavax Technologies, it appears that its cash is well balanced with its total liabilities. So while it’s hard to imagine the US$1.13 billion company struggling for cash, we still think it’s worth keeping an eye on its balance sheet. While it has liabilities worth noting, Dynavax Technologies also has more cash than debt, so we’re pretty confident it can manage its debt safely.
It was also good to see that despite losing money on the EBIT line last year, Dynavax Technologies turned things around over the last 12 months, delivering an EBIT of US$144 million. The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Dynavax Technologies’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
But our last consideration is also important, because a company cannot pay debt with paper profits; he needs cash. Dynavax Technologies may have net cash on the balance sheet, but it is always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its capacity. to manage debt. Fortunately for all shareholders, Dynavax Technologies has actually produced more free cash flow than EBIT over the past year. This kind of high cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.
While it’s always a good idea to look at a company’s total liabilities, it’s very reassuring that Dynavax Technologies has $282.5 million in net cash. And it impressed us with free cash flow of $238 million, or 165% of its EBIT. So is Dynavax Technologies’ debt a risk? This does not seem to us to be the case. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. We have identified 4 warning signs with Dynavax Technologies (at least 1 which is concerning), and understanding them should be part of your investment process.
In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeright now.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.