NanoString Technologies (NASDAQ:NSTG) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies NanoString Technologies, Inc. (NASDAQ:NSTG) makes use of debt. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for NanoString Technologies

How Much Debt Does NanoString Technologies Carry?

As you can see below, NanoString Technologies had US$225.9m 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$272.3m in cash to offset that, meaning it has US$46.5m net cash.

How Healthy Is NanoString Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that NanoString Technologies had liabilities of US$51.8m due within 12 months and liabilities of US$248.9m due beyond that. Offsetting these obligations, it had cash of US$272.3m as well as receivables valued at US$31.4m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to NanoString Technologies' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$638.8m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, NanoString Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! 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 NanoString Technologies'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, NanoString Technologies reported revenue of US$143m, which is a gain of 7.0%, 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 NanoString Technologies?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year NanoString Technologies had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$126m of cash and made a loss of US$139m. But the saving grace is the US$46.5m on the balance sheet. 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. For instance, we've identified 3 warning signs for NanoString Technologies 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.