Is Glaukos (NYSE:GKOS) Using Debt In A Risky Way?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Glaukos Corporation (NYSE:GKOS) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 Glaukos

How Much Debt Does Glaukos Carry?

You can click the graphic below for the historical numbers, but it shows that Glaukos had US$56.7m of debt in June 2024, down from US$282.1m, one year before. But it also has US$261.7m in cash to offset that, meaning it has US$205.0m net cash.

How Strong Is Glaukos' Balance Sheet?

We can see from the most recent balance sheet that Glaukos had liabilities of US$70.1m falling due within a year, and liabilities of US$184.4m due beyond that. On the other hand, it had cash of US$261.7m and US$51.2m worth of receivables due within a year. So it can boast US$58.4m more liquid assets than total liabilities.

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$6.83b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Glaukos has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Glaukos's ability to maintain a healthy balance sheet going forward. 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 reported revenue of US$342m, which is a gain of 15%, 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 Glaukos?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Glaukos lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$82m and booked a US$159m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$205.0m. That means it could keep spending at its current rate for more than two years. 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. 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 Glaukos is showing 2 warning signs in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.