Does AtriCure (NASDAQ:ATRC) Have A Healthy Balance Sheet?

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. As with many other companies AtriCure, Inc. (NASDAQ:ATRC) makes use of debt. But the more important question is: how much risk is that debt creating?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for AtriCure

What Is AtriCure's Net Debt?

The chart below, which you can click on for greater detail, shows that AtriCure had US$60.6m in debt in December 2023; about the same as the year before. However, its balance sheet shows it holds US$137.3m in cash, so it actually has US$76.7m net cash.

A Look At AtriCure's Liabilities

The latest balance sheet data shows that AtriCure had liabilities of US$74.6m due within a year, and liabilities of US$73.2m falling due after that. Offsetting these obligations, it had cash of US$137.3m as well as receivables valued at US$52.5m due within 12 months. So it actually has US$42.0m more liquid assets than total liabilities.

This short term liquidity is a sign that AtriCure could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that AtriCure has more cash than debt is arguably a good indication that it can manage its debt safely. 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're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year AtriCure wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to US$399m. With any luck the company will be able to grow its way to profitability.

So How Risky Is AtriCure?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months AtriCure lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$7.5m of cash and made a loss of US$30m. While this does make the company a bit risky, it's important to remember it has net cash of US$76.7m. That means it could keep spending at its current rate for more than two years. AtriCure's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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. However, not all investment risk resides within the balance sheet - far from it. For example - AtriCure has 2 warning signs we think 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.