Health Check: How Prudently Does Natera (NASDAQ:NTRA) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 Natera, Inc. (NASDAQ:NTRA) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Natera

How Much Debt Does Natera Carry?

As you can see below, at the end of March 2023, Natera had US$362.4m of debt, up from US$330.8m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$812.0m in cash, so it actually has US$449.6m net cash.

How Healthy Is Natera's Balance Sheet?

The latest balance sheet data shows that Natera had liabilities of US$291.0m due within a year, and liabilities of US$377.3m falling due after that. Offsetting these obligations, it had cash of US$812.0m as well as receivables valued at US$246.8m due within 12 months. So it actually has US$390.5m more liquid assets than total liabilities.

This surplus suggests that Natera has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Natera 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 Natera 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, Natera reported revenue of US$868m, which is a gain of 30%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Natera?

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 Natera lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$479m and booked a US$546m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$449.6m. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, Natera may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Natera you should be aware of.

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.