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. We can see that AtriCure, Inc. (NASDAQ:ATRC) does use debt in its business. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 examine debt levels, we first consider both cash and debt levels, together.
What Is AtriCure's Debt?
The chart below, which you can click on for greater detail, shows that AtriCure had US$60.3m in debt in June 2021; about the same as the year before. But it also has US$159.9m in cash to offset that, meaning it has US$99.5m net cash.
How Strong Is AtriCure's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that AtriCure had liabilities of US$67.4m due within 12 months and liabilities of US$248.6m due beyond that. Offsetting these obligations, it had cash of US$159.9m as well as receivables valued at US$33.8m due within 12 months. So it has liabilities totalling US$122.3m more than its cash and near-term receivables, combined.
Since publicly traded AtriCure shares are worth a total of US$3.32b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 ultimately the future profitability of the business will decide if AtriCure can strengthen its balance sheet over time. 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, AtriCure reported revenue of US$243m, which is a gain of 15%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
So How Risky Is AtriCure?
We have no doubt that loss making companies are, in general, riskier than profitable ones. 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$14m and booked a US$57m accounting loss. However, it has net cash of US$99.5m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 - AtriCure has 3 warning signs we think 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.
What are the risks and opportunities for AtriCure?
Trading at 7.6% below our estimate of its fair value
Revenue is forecast to grow 14.8% per year
Currently unprofitable and not forecast to become profitable over the next 3 years
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.
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AtriCure, Inc. develops, manufactures, and sells devices for the surgical ablation of cardiac tissue and systems, and intercostal nerves to medical centers in the United States, Europe, Asia, and internationally.
Excellent balance sheet and overvalued.