Is SI-BONE (NASDAQ:SIBN) Using Debt In A Risky Way?

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 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 SI-BONE, Inc. (NASDAQ:SIBN) makes use of 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for SI-BONE

What Is SI-BONE's Debt?

As you can see below, SI-BONE had US$35.1m of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. But it also has US$114.4m in cash to offset that, meaning it has US$79.3m net cash.

How Strong Is SI-BONE's Balance Sheet?

According to the last reported balance sheet, SI-BONE had liabilities of US$16.7m due within 12 months, and liabilities of US$38.6m due beyond 12 months. Offsetting this, it had US$114.4m in cash and US$15.4m in receivables that were due within 12 months. So it actually has US$74.5m 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. Succinctly put, SI-BONE 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 SI-BONE 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 SI-BONE wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$96m. 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 we do note that SI-BONE had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$57m of cash and made a loss of US$66m. While this does make the company a bit risky, it's important to remember it has net cash of US$79.3m. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for SI-BONE that you should be aware of.

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.