Does Nevro (NYSE:NVRO) Have A Healthy Balance Sheet?

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. Importantly, Nevro Corp. (NYSE:NVRO) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Nevro

What Is Nevro's Debt?

As you can see below, at the end of March 2024, Nevro had US$214.8m of debt, up from US$187.2m a year ago. Click the image for more detail. But on the other hand it also has US$281.5m in cash, leading to a US$66.7m net cash position.

A Look At Nevro's Liabilities

We can see from the most recent balance sheet that Nevro had liabilities of US$66.8m falling due within a year, and liabilities of US$250.7m due beyond that. On the other hand, it had cash of US$281.5m and US$76.9m worth of receivables due within a year. So it actually has US$40.9m more liquid assets than total liabilities.

This surplus suggests that Nevro has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Nevro 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 ultimately the future profitability of the business will decide if Nevro 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, Nevro reported revenue of US$431m, which is a gain of 3.8%, 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 Nevro?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Nevro had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$71m of cash and made a loss of US$83m. While this does make the company a bit risky, it's important to remember it has net cash of US$66.7m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. We've identified 2 warning signs with Nevro , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.

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