Does ClearPoint Neuro (NASDAQ:CLPT) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, ClearPoint Neuro, Inc. (NASDAQ:CLPT) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. 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 ClearPoint Neuro

What Is ClearPoint Neuro's Debt?

As you can see below, ClearPoint Neuro had US$9.94m of debt, at September 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has US$24.3m in cash to offset that, meaning it has US$14.4m net cash.

A Look At ClearPoint Neuro's Liabilities

Zooming in on the latest balance sheet data, we can see that ClearPoint Neuro had liabilities of US$5.59m due within 12 months and liabilities of US$14.2m due beyond that. Offsetting this, it had US$24.3m in cash and US$3.02m in receivables that were due within 12 months. So it can boast US$7.62m more liquid assets than total liabilities.

This short term liquidity is a sign that ClearPoint Neuro could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, ClearPoint Neuro 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 ClearPoint Neuro 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 ClearPoint Neuro wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to US$22m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is ClearPoint Neuro?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that ClearPoint Neuro had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$17m of cash and made a loss of US$22m. But the saving grace is the US$14.4m on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with ClearPoint Neuro , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.