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

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. As with many other companies SI-BONE, Inc. (NASDAQ:SIBN) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for SI-BONE

What Is SI-BONE's Debt?

As you can see below, at the end of September 2022, SI-BONE had US$35.1m of debt, up from US$28.7m a year ago. Click the image for more detail. However, it does have US$104.1m in cash offsetting this, leading to net cash of US$69.0m.

How Strong Is SI-BONE's Balance Sheet?

We can see from the most recent balance sheet that SI-BONE had liabilities of US$18.6m falling due within a year, and liabilities of US$36.9m due beyond that. On the other hand, it had cash of US$104.1m and US$16.8m worth of receivables due within a year. So it actually has US$65.4m 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! 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 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$100m, which is a gain of 14%, 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?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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$57m and booked a US$65m accounting loss. But the saving grace is the US$69.0m on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 4 warning signs for SI-BONE you should be aware of.

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.