Is SI-BONE (NASDAQ:SIBN) Using Too Much 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.' 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 should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for SI-BONE

What Is SI-BONE's Net Debt?

The chart below, which you can click on for greater detail, shows that SI-BONE had US$36.0m in debt in September 2023; about the same as the year before. But on the other hand it also has US$166.8m in cash, leading to a US$130.7m net cash position.

A Look At SI-BONE's Liabilities

Zooming in on the latest balance sheet data, we can see that SI-BONE had liabilities of US$19.4m due within 12 months and liabilities of US$37.9m due beyond that. Offsetting these obligations, it had cash of US$166.8m as well as receivables valued at US$20.1m due within 12 months. So it can boast US$129.6m more liquid assets than total liabilities.

This surplus suggests that SI-BONE is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that SI-BONE has more cash than debt is arguably a good indication that it can manage its debt safely. 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.

In the last year SI-BONE wasn't profitable at an EBIT level, but managed to grow its revenue by 32%, to US$132m. With any luck the company will be able to grow its way to profitability.

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. Indeed, in that time it burnt through US$32m of cash and made a loss of US$44m. But the saving grace is the US$130.7m on the balance sheet. That means it could keep spending at its current rate for more than two years. SI-BONE'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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for SI-BONE that you should be aware of before investing here.

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.