Is NovoCure (NASDAQ:NVCR) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 NovoCure Limited ( NASDAQ:NVCR ) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for NovoCure

What Is NovoCure's Net Debt?

As you can see below, NovoCure had US$566.3m of debt, at March 2023, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$958.0m in cash, leading to a US$391.7m net cash position. Readers should note that this debt includes a portion of convertible debt that can be converted into cash or equity, subject to certain conditions and timeframes.

A Look At NovoCure's Liabilities

According to the last reported balance sheet, NovoCure had liabilities of US$148.8m due within 12 months, and liabilities of US$593.4m due beyond 12 months. Offsetting these obligations, it had cash of US$958.0m as well as receivables valued at US$98.6m due within 12 months. So it can boast US$314.4m more liquid assets than total liabilities.

This short term liquidity is a sign that NovoCure could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that NovoCure has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if NovoCure 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 .

Over 12 months, NovoCure made a loss at the EBIT level, and saw its revenue drop to US$522m, which is a fall of 2.9%. We would much prefer see growth.

So How Risky Is NovoCure?

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 NovoCure lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$4.6m of cash and made a loss of US$141m. Given it only has net cash of US$391.7m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For instance, we've identified 2 warning signs for NovoCure that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks , today.

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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.