Does Glaukos (NYSE:GKOS) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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 Glaukos Corporation (NYSE:GKOS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Our analysis indicates that GKOS is potentially overvalued!

What Is Glaukos's Debt?

As you can see below, Glaukos had US$280.7m of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. But it also has US$391.2m in cash to offset that, meaning it has US$110.5m net cash.

How Healthy Is Glaukos' Balance Sheet?

The latest balance sheet data shows that Glaukos had liabilities of US$69.5m due within a year, and liabilities of US$399.3m falling due after that. Offsetting these obligations, it had cash of US$391.2m as well as receivables valued at US$36.0m due within 12 months. So it has liabilities totalling US$41.6m more than its cash and near-term receivables, combined.

This state of affairs indicates that Glaukos' 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$2.56b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Glaukos 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 Glaukos 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, Glaukos saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Glaukos?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Glaukos lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$25m of cash and made a loss of US$56m. While this does make the company a bit risky, it's important to remember it has net cash of US$110.5m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For instance, we've identified 2 warning signs for Glaukos that you should be aware of.

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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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.