Advertisement
Canada markets close in 3 hours 19 minutes
  • S&P/TSX

    22,176.49
    +69.41 (+0.31%)
     
  • S&P 500

    5,251.00
    +2.51 (+0.05%)
     
  • DOW

    39,762.48
    +2.40 (+0.01%)
     
  • CAD/USD

    0.7392
    +0.0020 (+0.27%)
     
  • CRUDE OIL

    82.70
    +1.35 (+1.66%)
     
  • Bitcoin CAD

    95,985.79
    +2,325.67 (+2.48%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • GOLD FUTURES

    2,240.60
    +27.90 (+1.26%)
     
  • RUSSELL 2000

    2,133.14
    +18.79 (+0.89%)
     
  • 10-Yr Bond

    4.1910
    -0.0050 (-0.12%)
     
  • NASDAQ

    16,386.27
    -13.25 (-0.08%)
     
  • VOLATILITY

    12.94
    +0.16 (+1.25%)
     
  • FTSE

    7,960.37
    +28.39 (+0.36%)
     
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     
  • CAD/EUR

    0.6838
    +0.0033 (+0.48%)
     

Is SI-BONE (NASDAQ:SIBN) Using Debt Sensibly?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 SI-BONE, Inc. (NASDAQ:SIBN) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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.

See our latest analysis for SI-BONE

How Much Debt Does SI-BONE Carry?

The image below, which you can click on for greater detail, shows that SI-BONE had debt of US$36.2m at the end of June 2021, a reduction from US$39.3m over a year. However, its balance sheet shows it holds US$176.6m in cash, so it actually has US$140.4m net cash.

debt-equity-history-analysis
debt-equity-history-analysis

A Look At SI-BONE's Liabilities

According to the last reported balance sheet, SI-BONE had liabilities of US$12.6m due within 12 months, and liabilities of US$40.5m due beyond 12 months. On the other hand, it had cash of US$176.6m and US$11.9m worth of receivables due within a year. So it can boast US$135.4m more liquid assets than total liabilities.

ADVERTISEMENT

It's good to see that SI-BONE 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 SI-BONE 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 SI-BONE's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year SI-BONE wasn't profitable at an EBIT level, but managed to grow its revenue by 27%, to US$85m. With any luck the company will be able to grow its way to profitability.

So How Risky Is SI-BONE?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year SI-BONE had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$36m of cash and made a loss of US$45m. But the saving grace is the US$140.4m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, SI-BONE may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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 instance, we've identified 4 warning signs for SI-BONE that 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.

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.

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