Is SI-BONE (NASDAQ:SIBN) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 SI-BONE, Inc. (NASDAQ:SIBN) makes use of debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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?

As you can see below, SI-BONE had US$36.1m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has US$151.5m in cash to offset that, meaning it has US$115.4m net cash.

How Healthy Is SI-BONE's Balance Sheet?

The latest balance sheet data shows that SI-BONE had liabilities of US$22.1m due within a year, and liabilities of US$37.1m falling due after that. Offsetting these obligations, it had cash of US$151.5m as well as receivables valued at US$25.1m due within 12 months. So it can boast US$117.5m more liquid assets than total liabilities.

This excess liquidity suggests that SI-BONE is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face 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. When analysing debt levels, the balance sheet is the obvious place to start. 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 21%, to US$151m. With any luck the company will be able to grow its way to profitability.

So How Risky Is SI-BONE?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that SI-BONE had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$26m and booked a US$41m accounting loss. But the saving grace is the US$115.4m on the balance sheet. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, SI-BONE may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. Case in point: We've spotted 3 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.