Is AtriCure (NASDAQ:ATRC) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 AtriCure, Inc. (NASDAQ:ATRC) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for AtriCure

What Is AtriCure's Net Debt?

As you can see below, AtriCure had US$60.2m of debt, at December 2022, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$121.1m in cash, so it actually has US$60.9m net cash.

A Look At AtriCure's Liabilities

According to the last reported balance sheet, AtriCure had liabilities of US$58.4m due within 12 months, and liabilities of US$70.3m due beyond 12 months. Offsetting these obligations, it had cash of US$121.1m as well as receivables valued at US$42.7m due within 12 months. So it actually has US$35.1m more liquid assets than total liabilities.

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$2.05b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, AtriCure boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. 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$330m, which is a gain of 20%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is AtriCure?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months AtriCure lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$39m and booked a US$46m accounting loss. However, it has net cash of US$60.9m, so it has a bit of time before it will need more capital. 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 instance, we've identified 2 warning signs for AtriCure that you should be aware of.

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.