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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that AtriCure, Inc. (NASDAQ:ATRC) does use debt in its business. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is AtriCure's Net Debt?
The chart below, which you can click on for greater detail, shows that AtriCure had US$60.0m in debt in September 2020; about the same as the year before. But on the other hand it also has US$233.1m in cash, leading to a US$173.1m net cash position.
How Healthy Is AtriCure's Balance Sheet?
The latest balance sheet data shows that AtriCure had liabilities of US$44.8m due within a year, and liabilities of US$245.5m falling due after that. Offsetting this, it had US$233.1m in cash and US$25.4m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$31.7m.
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$2.47b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, AtriCure also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if AtriCure can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, AtriCure made a loss at the EBIT level, and saw its revenue drop to US$210m, which is a fall of 5.5%. That's not what we would hope to see.
So How Risky Is AtriCure?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that AtriCure had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$36m of cash and made a loss of US$46m. However, it has net cash of US$173.1m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with AtriCure , and understanding them should be part of your investment process.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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