Is AtriCure (NASDAQ:ATRC) Using Debt In A Risky Way?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 AtriCure, Inc. (NASDAQ:ATRC) makes use of debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for AtriCure

How Much Debt Does AtriCure Carry?

As you can see below, AtriCure had US$61.9m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$130.3m in cash offsetting this, leading to net cash of US$68.5m.

How Strong Is AtriCure's Balance Sheet?

We can see from the most recent balance sheet that AtriCure had liabilities of US$74.4m falling due within a year, and liabilities of US$75.6m due beyond that. On the other hand, it had cash of US$130.3m and US$54.9m worth of receivables due within a year. So it actually has US$35.2m more liquid assets than total liabilities.

This surplus suggests that AtriCure has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, AtriCure 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 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$448m, which is a gain of 18%, 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 we do note that AtriCure had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$1.2m of cash and made a loss of US$39m. While this does make the company a bit risky, it's important to remember it has net cash of US$68.5m. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for AtriCure that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.