Is AtriCure (NASDAQ:ATRC) Using Too Much Debt?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that AtriCure, Inc. (NASDAQ:ATRC) does use debt in its business. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses 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.
Check out our latest analysis for AtriCure
What Is AtriCure's Net Debt?
The chart below, which you can click on for greater detail, shows that AtriCure had US$59.8m in debt in March 2022; about the same as the year before. But it also has US$111.4m in cash to offset that, meaning it has US$51.5m net cash.
A Look At AtriCure's Liabilities
The latest balance sheet data shows that AtriCure had liabilities of US$47.4m due within a year, and liabilities of US$74.8m falling due after that. On the other hand, it had cash of US$111.4m and US$40.9m worth of receivables due within a year. So it can boast US$30.1m more liquid assets than total liabilities.
Having regard to AtriCure's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$2.26b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, AtriCure boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine AtriCure's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year AtriCure wasn't profitable at an EBIT level, but managed to grow its revenue by 36%, to US$290m. With any luck the company will be able to grow its way to profitability.
So How Risky Is AtriCure?
Although AtriCure had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$52m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. Keeping in mind its 36% revenue growth over the last year, we think there's a decent chance the company is on track. We'd see further strong growth as an optimistic indication. 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 example, we've discovered 1 warning sign for AtriCure that you should be aware of before investing here.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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