Is Glaukos (NYSE:GKOS) A Risky Investment?

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.' 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. Importantly, Glaukos Corporation (NYSE:GKOS) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. 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.

Check out our latest analysis for Glaukos

What Is Glaukos's Net Debt?

The chart below, which you can click on for greater detail, shows that Glaukos had US$282.4m in debt in September 2023; about the same as the year before. But on the other hand it also has US$300.9m in cash, leading to a US$18.4m net cash position.

How Healthy Is Glaukos' Balance Sheet?

The latest balance sheet data shows that Glaukos had liabilities of US$67.1m due within a year, and liabilities of US$403.8m falling due after that. On the other hand, it had cash of US$300.9m and US$39.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$130.8m.

Of course, Glaukos has a market capitalization of US$4.45b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Glaukos 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 Glaukos 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.

Over 12 months, Glaukos reported revenue of US$304m, which is a gain of 6.6%, 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.

So How Risky Is Glaukos?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Glaukos had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$75m of cash and made a loss of US$129m. While this does make the company a bit risky, it's important to remember it has net cash of US$18.4m. That means it could keep spending at its current rate for more than two years. 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. Be aware that Glaukos is showing 1 warning sign in our investment analysis , you should know about...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.