Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Natera, Inc. (NASDAQ:NTRA) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Natera Carry?

The chart below, which you can click on for greater detail, shows that Natera had US$363.7m in debt in March 2024; about the same as the year before. But on the other hand it also has US$882.9m in cash, leading to a US$519.3m net cash position.

A Look At Natera's Liabilities

We can see from the most recent balance sheet that Natera had liabilities of US$305.9m falling due within a year, and liabilities of US$368.1m due beyond that. Offsetting these obligations, it had cash of US$882.9m as well as receivables valued at US$288.7m due within 12 months. So it actually has US$497.6m more liquid assets than total liabilities.

This short term liquidity is a sign that Natera could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Natera 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 Natera 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 Natera wasn't profitable at an EBIT level, but managed to grow its revenue by 39%, to US$1.2b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Natera?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Natera had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$197m of cash and made a loss of US$365m. While this does make the company a bit risky, it's important to remember it has net cash of US$519.3m. That means it could keep spending at its current rate for more than two years. Natera's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Natera is showing 2 warning signs in our investment analysis , 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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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@simplywallst.com