David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We can see that ClearPoint Neuro, Inc. (NASDAQ:CLPT) does use debt in its business. 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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does ClearPoint Neuro Carry?
The chart below, which you can click on for greater detail, shows that ClearPoint Neuro had US$9.98m in debt in June 2024; about the same as the year before. But on the other hand it also has US$32.8m in cash, leading to a US$22.9m net cash position.
How Healthy Is ClearPoint Neuro's Balance Sheet?
We can see from the most recent balance sheet that ClearPoint Neuro had liabilities of US$16.7m falling due within a year, and liabilities of US$3.75m due beyond that. On the other hand, it had cash of US$32.8m and US$4.53m worth of receivables due within a year. So it can boast US$16.9m more liquid assets than total liabilities.
This short term liquidity is a sign that ClearPoint Neuro could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, ClearPoint Neuro boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ClearPoint Neuro's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, ClearPoint Neuro reported revenue of US$28m, which is a gain of 29%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is ClearPoint Neuro?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year ClearPoint Neuro had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$9.9m and booked a US$18m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$22.9m. That kitty means the company can keep spending for growth for at least two years, at current rates. ClearPoint Neuro's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for ClearPoint Neuro 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.
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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.
