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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies PROCEPT BioRobotics Corporation (NASDAQ:PRCT) makes use of debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.
What Is PROCEPT BioRobotics's Debt?
The chart below, which you can click on for greater detail, shows that PROCEPT BioRobotics had US$53.3m in debt in March 2024; about the same as the year before. However, its balance sheet shows it holds US$225.6m in cash, so it actually has US$172.3m net cash.
A Look At PROCEPT BioRobotics' Liabilities
Zooming in on the latest balance sheet data, we can see that PROCEPT BioRobotics had liabilities of US$38.7m due within 12 months and liabilities of US$80.2m due beyond that. On the other hand, it had cash of US$225.6m and US$56.1m worth of receivables due within a year. So it actually has US$162.8m more liquid assets than total liabilities.
This short term liquidity is a sign that PROCEPT BioRobotics could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, PROCEPT BioRobotics boasts net cash, so it's fair to say it does not have a heavy debt load! 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 PROCEPT BioRobotics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year PROCEPT BioRobotics wasn't profitable at an EBIT level, but managed to grow its revenue by 83%, to US$156m. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is PROCEPT BioRobotics?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that PROCEPT BioRobotics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$126m of cash and made a loss of US$103m. But at least it has US$172.3m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, PROCEPT BioRobotics may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for PROCEPT BioRobotics that you should be aware of before investing here.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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.