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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies AtriCure, Inc. (NASDAQ:ATRC) makes use of debt. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
What Is AtriCure's Net Debt?
The chart below, which you can click on for greater detail, shows that AtriCure had US$61.9m in debt in June 2024; about the same as the year before. However, its balance sheet shows it holds US$114.0m in cash, so it actually has US$52.2m net cash.
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How Strong Is AtriCure's Balance Sheet?
We can see from the most recent balance sheet that AtriCure had liabilities of US$61.2m falling due within a year, and liabilities of US$74.0m due beyond that. Offsetting this, it had US$114.0m in cash and US$55.6m in receivables that were due within 12 months. So it can boast US$34.4m more liquid assets than total liabilities.
This surplus suggests that AtriCure has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, AtriCure 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 it is future earnings, more than anything, that will determine AtriCure'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, AtriCure reported revenue of US$430m, which is a gain of 18%, 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 AtriCure?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that AtriCure 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$20m and booked a US$40m accounting loss. But the saving grace is the US$52.2m on the balance sheet. 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. However, not all investment risk resides within the balance sheet - far from it. Be aware that AtriCure is showing 2 warning signs in our investment analysis , you should know about...
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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.