Warren Buffett famously said, '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 can see that Nevro Corp. (NYSE:NVRO) does use debt in its business. But should shareholders be worried about its use of debt?
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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Nevro's Debt?
As you can see below, at the end of March 2024, Nevro had US$214.8m of debt, up from US$187.2m a year ago. Click the image for more detail. However, it does have US$281.5m in cash offsetting this, leading to net cash of US$66.7m.
How Strong Is Nevro's Balance Sheet?
According to the last reported balance sheet, Nevro had liabilities of US$66.8m due within 12 months, and liabilities of US$250.7m due beyond 12 months. Offsetting this, it had US$281.5m in cash and US$76.9m in receivables that were due within 12 months. So it can boast US$40.9m more liquid assets than total liabilities.
This short term liquidity is a sign that Nevro could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Nevro 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 Nevro 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.
In the last year Nevro wasn't profitable at an EBIT level, but managed to grow its revenue by 3.8%, to US$431m. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is Nevro?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Nevro had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$71m of cash and made a loss of US$83m. While this does make the company a bit risky, it's important to remember it has net cash of US$66.7m. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Be aware that Nevro is showing 2 warning signs in our investment analysis , you should know about...
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.
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