Is Surgical Innovations Group (LON:SUN) Weighed On By Its Debt Load?

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 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. As with many other companies Surgical Innovations Group plc (LON:SUN) makes use of debt. But the real question is whether this debt is making the company risky.

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Surgical Innovations Group

How Much Debt Does Surgical Innovations Group Carry?

You can click the graphic below for the historical numbers, but it shows that Surgical Innovations Group had UK£1.88m of debt in December 2021, down from UK£2.18m, one year before. But it also has UK£3.64m in cash to offset that, meaning it has UK£1.76m net cash.

A Look At Surgical Innovations Group's Liabilities

We can see from the most recent balance sheet that Surgical Innovations Group had liabilities of UK£4.14m falling due within a year, and liabilities of UK£915.0k due beyond that. On the other hand, it had cash of UK£3.64m and UK£1.41m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

Having regard to Surgical Innovations Group's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the UK£16.8m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Surgical Innovations Group 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 Surgical Innovations Group'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.

In the last year Surgical Innovations Group wasn't profitable at an EBIT level, but managed to grow its revenue by 44%, to UK£9.1m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Surgical Innovations Group?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Surgical Innovations Group lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through UK£1.1m of cash and made a loss of UK£456k. Given it only has net cash of UK£1.76m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Surgical Innovations Group may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Surgical Innovations Group you should be aware of, and 1 of them makes us a bit uncomfortable.

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.