Health Check: How Prudently Does ViewRay (NASDAQ:VRAY) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that ViewRay, Inc. (NASDAQ:VRAY) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for ViewRay

What Is ViewRay's Debt?

The chart below, which you can click on for greater detail, shows that ViewRay had US$57.3m in debt in December 2021; about the same as the year before. But it also has US$218.3m in cash to offset that, meaning it has US$161.1m net cash.

How Healthy Is ViewRay's Balance Sheet?

We can see from the most recent balance sheet that ViewRay had liabilities of US$76.2m falling due within a year, and liabilities of US$75.8m due beyond that. Offsetting these obligations, it had cash of US$218.3m as well as receivables valued at US$21.7m due within 12 months. So it can boast US$88.0m more liquid assets than total liabilities.

This surplus suggests that ViewRay is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, ViewRay boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ViewRay 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.

Over 12 months, ViewRay reported revenue of US$70m, which is a gain of 23%, 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 ViewRay?

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 ViewRay 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$64m and booked a US$110m accounting loss. However, it has net cash of US$161.1m, so it has a bit of time before it will need more capital. ViewRay's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for ViewRay you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.