EyePoint Pharmaceuticals (NASDAQ:EYPT) has debt but no income; Should you be worried?

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Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The biggest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Like many other companies EyePoint Pharmaceuticals, Inc. (NASDAQ: EYPT) resorts to debt. But the more important question is: what risk does this debt create?

What risk does debt carry?

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 common (but still costly) event is when a company has to issue stock at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. 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 and debt together.

Check out our latest analysis for EyePoint Pharmaceuticals

What is EyePoint Pharmaceuticals’ net debt?

As you can see below, at the end of June 2022, EyePoint Pharmaceuticals had $39.7 million in debt, up from $36.2 million a year ago. Click on the image for more details. But on the other hand, he also has $171.2 million in cash, resulting in a net cash position of $131.5 million.

debt-equity-history-analysis

A look at the responsibilities of EyePoint Pharmaceuticals

Zooming in on the latest balance sheet data, we can see that EyePoint Pharmaceuticals had liabilities of US$33.4 million due within 12 months and liabilities of US$48.7 million due beyond. In return, he had $171.2 million in cash and $22.6 million in receivables due within 12 months. It can therefore boast of having $111.7 million more in liquid assets than total Passives.

This surplus strongly suggests that EyePoint Pharmaceuticals has a rock-solid balance sheet (and debt is nothing to worry about). From this perspective, lenders should feel as secure as the beloved of a black belt karate master. In short, EyePoint Pharmaceuticals has clean cash, so it’s fair to say that it doesn’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But future revenues, more than anything, will determine EyePoint Pharmaceuticals’ ability to maintain a healthy balance sheet in the future. So if you want to see what the pros think, you might find this free analyst earnings forecast report Be interesting.

Year-over-year, EyePoint Pharmaceuticals reported revenue of $41 million, a 5.9% gain, although it reported no earnings before interest and taxes. We generally like to see faster growth from unprofitable businesses, but each in its own way.

So how risky is EyePoint Pharmaceuticals?

By their very nature, companies that lose money are riskier than those with a long history of profitability. And we note that EyePoint Pharmaceuticals recorded a loss in earnings before interest and taxes (EBIT) over the past year. And during the same period, it recorded a negative free cash outflow of US$64 million and recorded a book loss of US$77 million. Given that it only has net cash of US$131.5 million, the company may need to raise more capital if it does not break even soon. Even if its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company does not produce free cash flow regularly. 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. We have identified 2 warning signs with EyePoint Pharmaceuticals 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% freeat present.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

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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