Does Ocular Therapeutix (NASDAQ:OCUL) 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.' 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 Ocular Therapeutix, Inc. (NASDAQ:OCUL) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Ocular Therapeutix

What Is Ocular Therapeutix's Debt?

As you can see below, Ocular Therapeutix had US$67.8m of debt at September 2024, down from US$73.9m a year prior. However, it does have US$427.2m in cash offsetting this, leading to net cash of US$359.4m.

A Look At Ocular Therapeutix's Liabilities

According to the last reported balance sheet, Ocular Therapeutix had liabilities of US$36.4m due within 12 months, and liabilities of US$102.0m due beyond 12 months. Offsetting this, it had US$427.2m in cash and US$30.7m in receivables that were due within 12 months. So it actually has US$319.5m more liquid assets than total liabilities.

It's good to see that Ocular Therapeutix has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Ocular Therapeutix has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Ocular Therapeutix 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.

In the last year Ocular Therapeutix wasn't profitable at an EBIT level, but managed to grow its revenue by 6.5%, to US$61m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Ocular Therapeutix?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Ocular Therapeutix had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$119m of cash and made a loss of US$174m. While this does make the company a bit risky, it's important to remember it has net cash of US$359.4m. 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. 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. We've identified 3 warning signs with Ocular Therapeutix (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

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.

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

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.