ShockWave Medical (NASDAQ: SWAV) has debt but no income; Should we be worried?
David Iben put it well when he said: âVolatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ It is only natural to consider a company’s balance sheet when considering how risky it is, as debt is often involved when a business collapses. We note that ShockWave Medical, Inc. (NASDAQ: SWAV) has debt on its balance sheet. But the real question is whether this debt makes the business risky.
When is debt dangerous?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. When we think of a business’s use of debt, we first look at cash flow and debt together.
Check out our latest review for ShockWave Medical
What is ShockWave Medical’s debt?
As you can see below, ShockWave Medical was in debt of US $ 17.0 million, as of September 2021, which is roughly the same as the year before. You can click on the graph for more details. But on the other hand, it also has $ 183.0 million in cash, which leads to a net cash position of $ 166.0 million.
A look at the responsibilities of ShockWave Medical
Zooming in on the latest balance sheet data, we can see that ShockWave Medical had a liability of US $ 40.3 million due within 12 months and US $ 38.4 million liability beyond. In return, he had $ 183.0 million in cash and $ 30 million in receivables due within 12 months. So he actually has $ 134.2 million Following liquid assets as total liabilities.
This fact indicates that ShockWave Medical’s balance sheet looks quite strong, as its total liabilities roughly equal its liquid assets. So the $ 7.06 billion company is highly unlikely to be cash-strapped, but it’s still worth keeping an eye on the balance sheet. In short, ShockWave Medical has clean cash flow, so it’s fair to say that it doesn’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether ShockWave Medical can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Over 12 months, ShockWave Medical reported revenue of US $ 176 million, a gain of 196%, although it reported no profit before interest and taxes. So there is no doubt that shareholders are encouraging growth
So how risky is ShockWave Medical?
Statistically speaking, businesses that lose money are riskier than those that earn it. And we note that ShockWave Medical has recorded a loss of earnings before interest and taxes (EBIT) over the past year. And during the same period, it recorded negative free cash outflows of US $ 29 million and a book loss of US $ 38 million. However, he has a net cash position of US $ 166.0 million, so he has some time left before he needs more capital. The good news for shareholders is that ShockWave Medical is experiencing tremendous revenue growth, so there is a very good chance that it will be able to increase its free cash flow in the years to come. High growth nonprofits can be risky, but they can also offer great rewards. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. For example – ShockWave Medical has 2 warning signs we think you should be aware.
If you want to invest in companies that can generate profits without the burden of debt, check out this free list of growing companies that have net cash on the balance sheet.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.