SI-BONE (NASDAQ:SIBN) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that SI-BONE, Inc. (NASDAQ:SIBN) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for SI-BONE

How Much Debt Does SI-BONE Carry?

The image below, which you can click on for greater detail, shows that SI-BONE had debt of US$35.0m at the end of December 2021, a reduction from US$39.5m over a year. However, it does have US$147.0m in cash offsetting this, leading to net cash of US$112.0m.

How Strong Is SI-BONE's Balance Sheet?

We can see from the most recent balance sheet that SI-BONE had liabilities of US$16.9m falling due within a year, and liabilities of US$39.2m due beyond that. Offsetting these obligations, it had cash of US$147.0m as well as receivables valued at US$14.5m due within 12 months. So it can boast US$105.4m more liquid assets than total liabilities.

This excess liquidity suggests that SI-BONE is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. 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 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 23%, to US$90m. 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 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$46m of cash and made a loss of US$57m. But the saving grace is the US$112.0m 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. We've identified 3 warning signs with SI-BONE , and understanding them should be part of your investment process.

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.