Does CVRx (NASDAQ:CVRX) Have A Healthy Balance Sheet?

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 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 CVRx, Inc. (NASDAQ:CVRX) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. 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.

View our latest analysis for CVRx

What Is CVRx's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 CVRx had US$49.2m of debt, an increase on US$14.3m, over one year. But it also has US$100.2m in cash to offset that, meaning it has US$50.9m net cash.

How Strong Is CVRx's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CVRx had liabilities of US$10.9m due within 12 months and liabilities of US$51.5m due beyond that. On the other hand, it had cash of US$100.2m and US$9.03m worth of receivables due within a year. So it can boast US$46.7m more liquid assets than total liabilities.

This short term liquidity is a sign that CVRx could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, CVRx 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 it is future earnings, more than anything, that will determine CVRx's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, CVRx reported revenue of US$47m, which is a gain of 34%, 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 CVRx?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months CVRx lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$40m and booked a US$58m accounting loss. But at least it has US$50.9m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, CVRx may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for CVRx you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.