Zosano Pharma Corp. (ZSAN) stock prices were down by 3.77% as of the market closing on June 15th, 2021, bringing the price per share down to USD$1.02 at the end of the trading day. After-hours trading saw the stock fall by another 5.54%, bringing it down to USD$0.96.
Importance of Debt
Debt is bad for bad companies; but for good companies, debt is a tool that they can use to help them grow. The underlying assumption is the ability to pay off lenders, without the company carries immense inherent risk. Without a guarantee of the fulfillment of their legal obligations, shareholders could lose the entirety of their investments. Even it doesn’t come to the worst-case scenario, the shoring up of balance sheets could result in a dilution of company shares with the issuance of offerings to raise capital. Ideally, a company takes on dilution in the hopes of using that capital to reinvest and usher in growth that exceeds that dilution, otherwise taking on debt could be a cheaper option.
Solid Liquidity Position
As of March 2021, ZSAN reported USD$1.63 million in debt, as compared to not having any debt as of the March of the prior year. This debt is offset by a solid liquidity position of USD$26.9 million, resulting in net cash reserves of USD$25.3 million.
Debt Safety
ZSAN’s most recent balance sheets show liabilities in the amount of USD$14.4 being due over the course of the following 12 months, with liabilities of USD$8.15 million due beyond that. In conjunction with cash reserves of USD$26.9 million, the company reported USD$243,000 worth of receivables due over the year. Resultingly, ZSAN boasts liquid assets that amount to USD$4.57 more than total liabilities.
Course of Action
This comfortable ratio indicates a relatively conservative balance sheet, with the elimination of debt not seeming too difficult. With the safety of its debt assured, owing to the surplus of cash over debt, the company’s future earnings will dictate what course their balance sheet takes moving forward. In the absence of significant operating revenue, investors rely on the hope of hasty commercialization of ZSAN’s new medical technology.
Future Outlook for ZSAN
Armed with a solid liquidity position and very manageable debt, ZSAN is poised to continue its trajectory of success. The company is keen to usher in further growth with the effective allocation of capital and debt. Current and potential investors are hopeful that management will continue to leverage the resources at their disposal to facilitate significant and sustained increases in shareholder value.
