Is Axonics Modulation Technologies (NASDAQ:AXNX) Using Too Much Debt?
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Axonics Modulation Technologies, Inc. (NASDAQ:AXNX) makes use of debt. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for Axonics Modulation Technologies
How Much Debt Does Axonics Modulation Technologies Carry?
The chart below, which you can click on for greater detail, shows that Axonics Modulation Technologies had US$21.1m in debt in December 2020; about the same as the year before. But it also has US$241.2m in cash to offset that, meaning it has US$220.1m net cash.
How Healthy Is Axonics Modulation Technologies' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Axonics Modulation Technologies had liabilities of US$45.7m due within 12 months and liabilities of US$9.15m due beyond that. Offsetting these obligations, it had cash of US$241.2m as well as receivables valued at US$18.3m due within 12 months. So it can boast US$204.6m more liquid assets than total liabilities.
This surplus suggests that Axonics Modulation Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Axonics Modulation Technologies 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 Axonics Modulation Technologies's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Axonics Modulation Technologies reported revenue of US$112m, which is a gain of 691%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!
So How Risky Is Axonics Modulation Technologies?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Axonics Modulation Technologies had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$87m and booked a US$55m accounting loss. However, it has net cash of US$220.1m, so it has a bit of time before it will need more capital. Importantly, Axonics Modulation Technologies's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Axonics Modulation Technologies is showing 2 warning signs in our investment analysis , you should know about...
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
This article by Simply Wall St is general in nature. 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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