- Oops!Something went wrong.Please try again later.
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Ocular Therapeutix, Inc. (NASDAQ:OCUL) does carry debt. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
How Much Debt Does Ocular Therapeutix Carry?
You can click the graphic below for the historical numbers, but it shows that as of March 2022 Ocular Therapeutix had US$52.1m of debt, an increase on US$48.0m, over one year. But it also has US$145.4m in cash to offset that, meaning it has US$93.4m net cash.
How Healthy Is Ocular Therapeutix's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Ocular Therapeutix had liabilities of US$24.0m due within 12 months and liabilities of US$83.9m due beyond that. Offsetting this, it had US$145.4m in cash and US$23.2m in receivables that were due within 12 months. So it actually has US$60.8m more liquid assets than total liabilities.
This surplus suggests that Ocular Therapeutix is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Ocular Therapeutix 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 Ocular Therapeutix'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, Ocular Therapeutix reported revenue of US$49m, which is a gain of 123%, 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 Ocular Therapeutix?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that Ocular Therapeutix 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$68m and booked a US$22m accounting loss. Given it only has net cash of US$93.4m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Ocular Therapeutix has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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 2 warning signs for Ocular Therapeutix that you should be aware of before investing here.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.