David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, AxoGen, Inc. (NASDAQ:AXGN) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. When we think about a company's use of debt, we first look at cash and debt together.
How Much Debt Does AxoGen Carry?
You can click the graphic below for the historical numbers, but it shows that AxoGen had US$69.0k of debt in March 2019, down from US$24.6m, one year before. But it also has US$107.8m in cash to offset that, meaning it has US$107.8m net cash.
A Look At AxoGen's Liabilities
Zooming in on the latest balance sheet data, we can see that AxoGen had liabilities of US$16.5m due within 12 months and liabilities of US$3.26m due beyond that. On the other hand, it had cash of US$107.8m and US$15.2m worth of receivables due within a year. So it can boast US$103.3m more liquid assets than total liabilities.
It's good to see that AxoGen has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that AxoGen has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine AxoGen'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.
Over 12 months, AxoGen reported revenue of US$90m, which is a gain of 37%. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is AxoGen?
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 AxoGen had negative earnings before interest and tax (EBIT), over the last year. And over the same period it saw negative free cash outflow of US$27m and booked a US$26m accounting loss. But the saving grace is the US$108m on the balance sheet. That kitty means the company can keep spending for growth for at least three years, at current rates. With very solid revenue growth in the last year, AxoGen may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting AxoGen insider transactions.
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.
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