Is NovoCure (NASDAQ:NVCR) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, NovoCure Limited (NASDAQ:NVCR) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for NovoCure

What Is NovoCure's Debt?

As you can see below, NovoCure had US$567.2m of debt, at June 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$940.8m in cash, leading to a US$373.7m net cash position.

A Look At NovoCure's Liabilities

Zooming in on the latest balance sheet data, we can see that NovoCure had liabilities of US$150.1m due within 12 months and liabilities of US$593.2m due beyond that. On the other hand, it had cash of US$940.8m and US$91.1m worth of receivables due within a year. So it actually has US$288.6m 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. Succinctly put, NovoCure 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 NovoCure'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.

In the last year NovoCure had a loss before interest and tax, and actually shrunk its revenue by 6.9%, to US$508m. We would much prefer see growth.

So How Risky Is NovoCure?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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$46m of cash and made a loss of US$174m. With only US$373.7m on the balance sheet, it would appear that its going to need to raise capital again 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. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for NovoCure you should be aware of, and 1 of them is a bit unpleasant.

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.