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.' 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. As with many other companies AtriCure, Inc. (NASDAQ:ATRC) 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 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.

Check out our latest analysis for AtriCure

What Is AtriCure's Net Debt?

The chart below, which you can click on for greater detail, shows that AtriCure had US$60.0m in debt in June 2022; about the same as the year before. However, its balance sheet shows it holds US$118.5m in cash, so it actually has US$58.5m net cash.

How Healthy Is AtriCure's Balance Sheet?

The latest balance sheet data shows that AtriCure had liabilities of US$56.3m due within a year, and liabilities of US$74.4m falling due after that. Offsetting this, it had US$118.5m in cash and US$41.5m in receivables that were due within 12 months. So it can boast US$29.3m more liquid assets than total liabilities.

Having regard to AtriCure's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$2.16b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, AtriCure boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if AtriCure 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.

In the last year AtriCure wasn't profitable at an EBIT level, but managed to grow its revenue by 25%, to US$303m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is AtriCure?

Although AtriCure had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$53m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We think its revenue growth of 25% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - AtriCure has 1 warning sign we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.