Is Natera (NASDAQ:NTRA) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Natera, Inc. (NASDAQ:NTRA) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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, Natera had US$367.0m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has US$922.3m in cash to offset that, meaning it has US$555.3m net cash.

How Strong Is Natera's Balance Sheet?

According to the last reported balance sheet, Natera had liabilities of US$301.4m due within 12 months, and liabilities of US$411.0m due beyond 12 months. Offsetting these obligations, it had cash of US$922.3m as well as receivables valued at US$306.9m due within 12 months. So it can boast US$516.8m more liquid assets than total liabilities.

This short term liquidity is a sign that Natera could probably pay off its debt with ease, as its balance sheet is far from stretched. 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 it is future earnings, more than anything, that will determine Natera'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.

In the last year Natera wasn't profitable at an EBIT level, but managed to grow its revenue by 55%, to US$1.5b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Natera?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Natera had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$44m and booked a US$215m accounting loss. But the saving grace is the US$555.3m on the balance sheet. That means it could keep spending at its current rate for more than two years. Natera's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. We've identified 2 warning signs with Natera , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.