Is SI-BONE (NASDAQ:SIBN) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, SI-BONE, Inc. (NASDAQ:SIBN) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for SI-BONE

What Is SI-BONE's Debt?

The chart below, which you can click on for greater detail, shows that SI-BONE had US$35.2m in debt in December 2022; about the same as the year before. However, its balance sheet shows it holds US$97.3m in cash, so it actually has US$62.1m net cash.

A Look At SI-BONE's Liabilities

We can see from the most recent balance sheet that SI-BONE had liabilities of US$21.2m falling due within a year, and liabilities of US$38.1m due beyond that. Offsetting these obligations, it had cash of US$97.3m as well as receivables valued at US$20.9m due within 12 months. So it can boast US$58.9m more liquid assets than total liabilities.

This surplus suggests that SI-BONE has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that SI-BONE has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine SI-BONE's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, SI-BONE reported revenue of US$106m, which is a gain of 18%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is SI-BONE?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year SI-BONE had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$51m and booked a US$61m accounting loss. But the saving grace is the US$62.1m 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs we've spotted with SI-BONE .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.