Rock star Growth Puts CVRx (NASDAQ:CVRX) In A Position To Use Debt

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.' 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 is this debt a concern to shareholders?

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for CVRx

What Is CVRx's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2023 CVRx had debt of US$29.2m, up from US$6.75m in one year. But it also has US$90.6m in cash to offset that, meaning it has US$61.3m net cash.

A Look At CVRx's Liabilities

According to the last reported balance sheet, CVRx had liabilities of US$7.86m due within 12 months, and liabilities of US$31.4m due beyond 12 months. Offsetting this, it had US$90.6m in cash and US$7.55m in receivables that were due within 12 months. So it actually has US$58.8m more liquid assets than total liabilities.

This excess liquidity suggests that CVRx is taking a careful approach to debt. 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! When analysing debt levels, the balance sheet is the obvious place to start. 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$39m, which is a gain of 75%, 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?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that CVRx had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$40m of cash and made a loss of US$41m. However, it has net cash of US$61.3m, so it has a bit of time before it will need more capital. 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. For example, we've discovered 1 warning sign for CVRx 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.