Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 note that MYOS RENS Technology Inc. (NASDAQ:MYOS) does have debt on its balance sheet. But is this debt a concern to shareholders?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we examine debt levels, we first consider both cash and debt levels, together.
What Is MYOS RENS Technology's Debt?
The image below, which you can click on for greater detail, shows that at June 2019 MYOS RENS Technology had debt of US$785.0k, up from US$9.0k in one year. But it also has US$1.16m in cash to offset that, meaning it has US$373.0k net cash.
How Strong Is MYOS RENS Technology's Balance Sheet?
The latest balance sheet data shows that MYOS RENS Technology had liabilities of US$1.09m due within a year, and liabilities of US$172.0k falling due after that. Offsetting these obligations, it had cash of US$1.16m as well as receivables valued at US$16.0k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$91.0k.
This state of affairs indicates that MYOS RENS Technology's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$12.8m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, MYOS RENS Technology 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 ultimately the future profitability of the business will decide if MYOS RENS Technology 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, MYOS RENS Technology reported revenue of US$518k, which is a gain of 12%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
So How Risky Is MYOS RENS Technology?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that MYOS RENS Technology had negative earnings before interest and tax (EBIT), over the last year. Indeed, in that time it burnt through US$2.6m of cash and made a loss of US$3.1m. Given it only has net cash of US$373.0k, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 MYOS RENS Technology insider transactions.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.