Is Inspire Medical Systems (NYSE:INSP) A Risky Investment?
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, Inspire Medical Systems, Inc. (NYSE:INSP) does carry debt. But the more important question is: how much risk is that debt creating?
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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Inspire Medical Systems
What Is Inspire Medical Systems's Debt?
As you can see below, Inspire Medical Systems had US$25.0m of debt, at December 2021, which is about the same as the year before. You can click the chart for greater detail. But it also has US$214.5m in cash to offset that, meaning it has US$189.5m net cash.
How Strong Is Inspire Medical Systems' Balance Sheet?
We can see from the most recent balance sheet that Inspire Medical Systems had liabilities of US$41.3m falling due within a year, and liabilities of US$24.7m due beyond that. Offsetting this, it had US$214.5m in cash and US$34.2m in receivables that were due within 12 months. So it can boast US$182.6m more liquid assets than total liabilities.
This surplus suggests that Inspire Medical Systems has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Inspire Medical Systems 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 Inspire Medical Systems'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, Inspire Medical Systems reported revenue of US$233m, which is a gain of 102%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth
So How Risky Is Inspire Medical Systems?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Inspire Medical Systems had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$25m and booked a US$42m accounting loss. But the saving grace is the US$189.5m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Importantly, Inspire Medical Systems's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Inspire Medical Systems that you should be aware of before investing here.
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.
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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.
