Is NovoCure (NASDAQ:NVCR) Using Debt Sensibly?

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. As with many other companies NovoCure Limited (NASDAQ:NVCR) makes use of debt. But the more important question is: how much risk is that debt creating?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is NovoCure's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 NovoCure had US$656.4m of debt, an increase on US$569.7m, over one year. But on the other hand it also has US$929.1m in cash, leading to a US$272.7m net cash position.

How Healthy Is NovoCure's Balance Sheet?

According to the last reported balance sheet, NovoCure had liabilities of US$743.3m due within 12 months, and liabilities of US$143.5m due beyond 12 months. Offsetting this, it had US$929.1m in cash and US$118.6m in receivables that were due within 12 months. So it actually has US$160.8m more liquid assets than total liabilities.

This surplus suggests that NovoCure has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, NovoCure 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 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.

See our latest analysis for NovoCure

Over 12 months, NovoCure reported revenue of US$622m, which is a gain of 18%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is NovoCure?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that NovoCure had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$72m of cash and made a loss of US$164m. But the saving grace is the US$272.7m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. 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 - NovoCure has 2 warning signs we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.