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. As with many other companies ViewRay, Inc. (NASDAQ:VRAY) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for ViewRay

How Much Debt Does ViewRay Carry?

As you can see below, ViewRay had US$58.6m of debt, at September 2022, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$142.3m in cash, leading to a US$83.6m net cash position.

How Healthy Is ViewRay's Balance Sheet?

We can see from the most recent balance sheet that ViewRay had liabilities of US$83.2m falling due within a year, and liabilities of US$72.8m due beyond that. On the other hand, it had cash of US$142.3m and US$28.7m worth of receivables due within a year. So it actually has US$15.0m more liquid assets than total liabilities.

This state of affairs indicates that ViewRay's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$792.8m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, ViewRay 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 ViewRay'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.

Over 12 months, ViewRay reported revenue of US$88m, which is a gain of 29%, 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?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months ViewRay lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$79m of cash and made a loss of US$107m. However, it has net cash of US$83.6m, 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. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with ViewRay .

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.