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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that PROCEPT BioRobotics Corporation (NASDAQ:PRCT) does use debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.
What Is PROCEPT BioRobotics's Debt?
As you can see below, PROCEPT BioRobotics had US$53.2m of debt, at September 2023, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$287.1m in cash, so it actually has US$233.9m net cash.
A Look At PROCEPT BioRobotics' Liabilities
We can see from the most recent balance sheet that PROCEPT BioRobotics had liabilities of US$41.4m falling due within a year, and liabilities of US$80.4m due beyond that. On the other hand, it had cash of US$287.1m and US$34.6m worth of receivables due within a year. So it can boast US$199.9m more liquid assets than total liabilities.
This surplus suggests that PROCEPT BioRobotics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, PROCEPT BioRobotics 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 it is future earnings, more than anything, that will determine PROCEPT BioRobotics'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 PROCEPT BioRobotics wasn't profitable at an EBIT level, but managed to grow its revenue by 90%, to US$116m. With any luck the company will be able to grow its way to profitability.
So How Risky Is PROCEPT BioRobotics?
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 PROCEPT BioRobotics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$126m of cash and made a loss of US$107m. But at least it has US$233.9m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, PROCEPT BioRobotics 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. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for PROCEPT BioRobotics you should know about.
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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