Despite Lacking Profits PROCEPT BioRobotics (NASDAQ:PRCT) Seems To Be On Top Of Its Debt

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that PROCEPT BioRobotics Corporation (NASDAQ:PRCT) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for PROCEPT BioRobotics

What Is PROCEPT BioRobotics's Debt?

The chart below, which you can click on for greater detail, shows that PROCEPT BioRobotics had US$53.2m in debt in September 2023; about the same as the year before. However, its balance sheet shows it holds US$287.1m in cash, so it actually has US$233.9m net cash.

How Strong Is PROCEPT BioRobotics' Balance Sheet?

According to the last reported balance sheet, PROCEPT BioRobotics had liabilities of US$41.4m due within 12 months, and liabilities of US$80.4m due beyond 12 months. Offsetting this, it had US$287.1m in cash and US$34.6m in receivables that were due within 12 months. So it actually has US$199.9m more liquid assets than total liabilities.

This surplus suggests that PROCEPT BioRobotics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, PROCEPT BioRobotics 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 PROCEPT BioRobotics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year PROCEPT BioRobotics wasn't profitable at an EBIT level, but managed to grow its revenue by 90%, to US$116m. With any luck the company will be able to grow its way to profitability.

So How Risky Is PROCEPT BioRobotics?

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 PROCEPT BioRobotics 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$126m and booked a US$107m accounting loss. However, it has net cash of US$233.9m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, PROCEPT BioRobotics may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for PROCEPT BioRobotics you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.