Stock Analysis

Artivion (NYSE:AORT) Is Making Moderate Use Of Debt

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NYSE:AORT
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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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Artivion, Inc. (NYSE:AORT) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Artivion

What Is Artivion's Debt?

The chart below, which you can click on for greater detail, shows that Artivion had US$308.5m in debt in June 2022; about the same as the year before. However, it also had US$40.4m in cash, and so its net debt is US$268.1m.

debt-equity-history-analysis
NYSE:AORT Debt to Equity History September 28th 2022

How Healthy Is Artivion's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Artivion had liabilities of US$41.6m due within 12 months and liabilities of US$441.7m due beyond that. On the other hand, it had cash of US$40.4m and US$65.6m worth of receivables due within a year. So it has liabilities totalling US$377.4m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of US$589.0m, so it does suggest shareholders should keep an eye on Artivion's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Artivion's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Artivion reported revenue of US$309m, which is a gain of 10%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Artivion had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$4.2m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$21m of cash over the last year. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Artivion is showing 3 warning signs in our investment analysis , and 1 of those is potentially serious...

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.

Valuation is complex, but we're helping make it simple.

Find out whether Artivion is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NYSE:AORT

Artivion

Artivion Inc. manufactures, processes, and distributes medical devices and implantable human tissues worldwide.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation3
Future Growth4
Past Performance0
Financial Health3
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Reasonable growth potential and fair value.