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.  We can see that Sight Sciences, Inc. (NASDAQ:SGHT) does use debt in its business.  But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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.  When we examine debt levels, we first consider both cash and debt levels, together.

What Is Sight Sciences's Debt?

The chart below, which you can click on for greater detail, shows that Sight Sciences had US$33.7m in debt in March 2024; about the same as the year before.    But on the other hand it also has US$127.3m in cash, leading to a US$93.6m net cash position.  

NasdaqGS:SGHT Debt to Equity History June 4th 2024

How Strong Is Sight Sciences' Balance Sheet?

We can see from the most recent balance sheet that Sight Sciences had liabilities of US$11.7m falling due within a year, and liabilities of US$34.7m due beyond that.   On the other hand, it had cash of US$127.3m and US$15.6m worth of receivables due within a year.   So it actually has US$96.6m more liquid assets than total liabilities.  

This excess liquidity suggests that Sight Sciences is taking a careful approach to debt.  Because it has plenty of assets, it is unlikely to have trouble with its lenders.    Simply put, the fact that Sight Sciences 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 Sight Sciences'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, Sight Sciences reported revenue of US$81m, which is a gain of 8.3%, although it did not report any earnings before interest and tax.   We usually like to see faster growth from unprofitable companies, but each to their own.  

So How Risky Is Sight Sciences?

Statistically speaking companies that lose money are riskier than those that make money.  And we do note that Sight Sciences had an earnings before interest and tax (EBIT) loss, over the last year.  Indeed, in that time it burnt through US$40m of cash and made a loss of US$55m.   While this does make the company a bit risky, it's important to remember it has net cash of US$93.6m.  That kitty means the company can keep spending for growth for at least two years, at current rates.    Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow.    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 Sight Sciences that you should be aware of before investing here.  

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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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.