Is Apollo Endosurgery (NASDAQ:APEN) Using Debt Sensibly?

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 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 Apollo Endosurgery, Inc. (NASDAQ:APEN) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

View our latest analysis for Apollo Endosurgery

How Much Debt Does Apollo Endosurgery Carry?

The chart below, which you can click on for greater detail, shows that Apollo Endosurgery had US$53.7m in debt in December 2022; about the same as the year before. However, its balance sheet shows it holds US$57.0m in cash, so it actually has US$3.33m net cash.

How Healthy Is Apollo Endosurgery's Balance Sheet?

The latest balance sheet data shows that Apollo Endosurgery had liabilities of US$39.5m due within a year, and liabilities of US$38.1m falling due after that. On the other hand, it had cash of US$57.0m and US$15.0m worth of receivables due within a year. So its liabilities total US$5.64m more than the combination of its cash and short-term receivables.

Having regard to Apollo Endosurgery's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$575.1m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Apollo Endosurgery 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 Apollo Endosurgery 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 Apollo Endosurgery wasn't profitable at an EBIT level, but managed to grow its revenue by 22%, to US$77m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Apollo Endosurgery?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Apollo Endosurgery had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$34m of cash and made a loss of US$40m. With only US$3.33m on the balance sheet, it would appear that its going to need to raise capital again soon. Apollo Endosurgery'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. 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. For instance, we've identified 2 warning signs for Apollo Endosurgery that you should be aware of.

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.