AtriCure (NASDAQ:ATRC) Has Debt But No Earnings; Should You Worry?

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.' 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. As with many other companies AtriCure, Inc. (NASDAQ:ATRC) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for AtriCure

What Is AtriCure's Net Debt?

As you can see below, AtriCure had US$60.1m of debt, at December 2020, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$244.2m in cash, leading to a US$184.1m net cash position.

A Look At AtriCure's Liabilities

Zooming in on the latest balance sheet data, we can see that AtriCure had liabilities of US$49.1m due within 12 months and liabilities of US$253.0m due beyond that. On the other hand, it had cash of US$244.2m and US$23.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$34.8m.

This state of affairs indicates that AtriCure's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$2.86b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, 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.

In the last year AtriCure had a loss before interest and tax, and actually shrunk its revenue by 11%, to US$207m. That's not what we would hope to see.

So How Risky Is AtriCure?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year AtriCure 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$25m and booked a US$48m accounting loss. But at least it has US$184.1m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for AtriCure you should be aware of.

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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