Is Rockwell Medical (NASDAQ:RMTI) Weighed On By Its Debt Load?

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. As with many other companies Rockwell Medical, Inc. (NASDAQ:RMTI) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. 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.

View our latest analysis for Rockwell Medical

What Is Rockwell Medical's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Rockwell Medical had US$9.28m of debt in March 2023, down from US$18.4m, one year before. But it also has US$16.8m in cash to offset that, meaning it has US$7.56m net cash.

How Strong Is Rockwell Medical's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Rockwell Medical had liabilities of US$15.1m due within 12 months and liabilities of US$12.9m due beyond that. Offsetting this, it had US$16.8m in cash and US$6.02m in receivables that were due within 12 months. So its liabilities total US$5.08m more than the combination of its cash and short-term receivables.

Given Rockwell Medical has a market capitalization of US$51.0m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Rockwell Medical also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Rockwell Medical 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, Rockwell Medical reported revenue of US$76m, which is a gain of 22%, 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 Rockwell Medical?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Rockwell Medical had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$12m of cash and made a loss of US$13m. But at least it has US$7.56m on the balance sheet to spend on growth, near-term. Rockwell Medical's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Rockwell Medical (of which 1 is concerning!) you should know about.

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.