Cytokinetics (NASDAQ:CYTK) has debt but no revenue; Should you be worried?

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Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The greatest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We can see that Cytokinetics, Incorporated (NASDAQ: CYTK) uses debt in its business. But should shareholders worry about its use of debt?

When is debt a problem?

Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. The first thing to do when considering how much debt a business has is to look at its cash flow and debt together.

See our latest analysis for cytokinetics

What is Cytokinetics’ debt?

As you can see below, at the end of June 2022, Cytokinetics had a debt of $197.0 million, compared to $139.1 million a year ago. Click on the image for more details. But on the other hand, it also has $586.0 million in cash, resulting in a net cash position of $389.0 million.

NasdaqGS: CYTK Debt to Equity History August 23, 2022

A Look at Cytokinetics Responsibilities

The latest balance sheet data shows that Cytokinetics had liabilities of $66.8 million maturing within one year, and liabilities of $593.5 million maturing thereafter. In return, he had $586.0 million in cash and $1.97 million in receivables due within 12 months. Thus, its liabilities outweigh the sum of its cash and receivables (current) by $72.3 million.

This situation indicates that Cytokinetics’ balance sheet looks quite strong, as its total liabilities roughly equal its cash. So it’s highly unlikely that the $4.77 billion company will run out of cash, but it’s still worth keeping an eye on the balance sheet. While it has liabilities to note, Cytokinetics also has more cash than debt, so we’re pretty confident it can manage its debt safely. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Cytokinetics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Year-over-year Cytokinetics reported revenue of $151 million, a 162% gain, although it reported no earnings before interest and taxes. There is therefore no doubt that shareholders encourage growth

So, how risky is cytokinetics?

By their very nature, companies that lose money are riskier than those with a long history of profitability. And over the past year, Cytokinetics has had a loss in earnings before interest and taxes (EBIT), if truth be told. And during the same period, it recorded a negative free cash outflow of US$236 million and recorded a book loss of US$216 million. However, it has a net cash position of US$389.0 million, so it has some time left before it needs more capital. The good news for shareholders is that Cytokinetics has skyrocketing revenue growth, so there’s a very good chance it can grow its free cash flow in the years to come. While unprofitable businesses can be risky, they can also grow strongly and quickly in those pre-profit years. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Know that Cytokinetics shows 2 warning signs in our investment analysis you should know…

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% freeat present.

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.

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