Does CVRx (NASDAQ:CVRX) 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. We note that CVRx, Inc. (NASDAQ:CVRX) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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.

View our latest analysis for CVRx

What Is CVRx's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 CVRx had US$29.3m of debt, an increase on US$14.3m, over one year. However, its balance sheet shows it holds US$70.4m in cash, so it actually has US$41.1m net cash.

A Look At CVRx's Liabilities

According to the last reported balance sheet, CVRx had liabilities of US$9.13m due within 12 months, and liabilities of US$31.6m due beyond 12 months. On the other hand, it had cash of US$70.4m and US$8.61m worth of receivables due within a year. So it can boast US$38.3m more liquid assets than total liabilities.

It's good to see that CVRx has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, CVRx reported revenue of US$44m, which is a gain of 44%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is CVRx?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that CVRx had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$41m and booked a US$54m accounting loss. But at least it has US$41.1m 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with CVRx (including 1 which is potentially serious) .

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.

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