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

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.' 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. We note that SI-BONE, Inc. (NASDAQ:SIBN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does SI-BONE Carry?

The chart below, which you can click on for greater detail, shows that SI-BONE had US$35.5m in debt in December 2024; about the same as the year before. But it also has US$150.0m in cash to offset that, meaning it has US$114.6m net cash.

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$27.1m due within 12 months and liabilities of US$36.3m due beyond that. Offsetting these obligations, it had cash of US$150.0m as well as receivables valued at US$27.8m due within 12 months. So it can boast US$114.3m 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 ultimately the future profitability of the business will decide if SI-BONE can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

View our latest analysis for SI-BONE

Over 12 months, SI-BONE reported revenue of US$167m, which is a gain of 20%, although it did not report any earnings before interest and tax. 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$23m of cash and made a loss of US$31m. While this does make the company a bit risky, it's important to remember it has net cash of US$114.6m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, SI-BONE may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that SI-BONE is showing 2 warning signs in our investment analysis , you should know about...

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.