Does Exagen (NASDAQ:XGN) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Exagen Inc. (NASDAQ:XGN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Exagen

What Is Exagen's Net Debt?

As you can see below, Exagen had US$26.3m of debt, at March 2021, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$118.1m in cash offsetting this, leading to net cash of US$91.8m.

A Look At Exagen's Liabilities

We can see from the most recent balance sheet that Exagen had liabilities of US$7.88m falling due within a year, and liabilities of US$28.2m due beyond that. Offsetting these obligations, it had cash of US$118.1m as well as receivables valued at US$8.22m due within 12 months. So it can boast US$90.2m more liquid assets than total liabilities.

This surplus liquidity suggests that Exagen'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 means the company is able to handle some adversity. Succinctly put, Exagen boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Exagen 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.

In the last year Exagen wasn't profitable at an EBIT level, but managed to grow its revenue by 5.6%, to US$43m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Exagen?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Exagen 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$16m and booked a US$17m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$91.8m. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. 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 4 warning signs for Exagen (of which 1 is concerning!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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