Is ViewRay (NASDAQ:VRAY) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that ViewRay, Inc. (NASDAQ:VRAY) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for ViewRay

How Much Debt Does ViewRay Carry?

The chart below, which you can click on for greater detail, shows that ViewRay had US$55.6m in debt in December 2019; about the same as the year before. But on the other hand it also has US$226.8m in cash, leading to a US$171.2m net cash position.

How Strong Is ViewRay's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ViewRay had liabilities of US$59.1m due within 12 months and liabilities of US$74.8m due beyond that. Offsetting this, it had US$226.8m in cash and US$16.8m in receivables that were due within 12 months. So it actually has US$109.8m more liquid assets than total liabilities.

This surplus liquidity suggests that ViewRay's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet is as strong as beautiful a rare rhino. 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 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 8.4%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

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 we do note that ViewRay had negative earnings before interest and tax (EBIT), over the last year. And over the same period it saw negative free cash outflow of US$87m and booked a US$120m accounting loss. However, it has net cash of US$171.2m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for ViewRay you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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