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.' 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 Glaukos Corporation (NYSE:GKOS) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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, 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.

What Is Glaukos's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Glaukos had US$56.7m of debt in June 2024, down from US$282.1m, one year before. But on the other hand it also has US$261.7m in cash, leading to a US$205.0m net cash position.

How Healthy Is Glaukos' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Glaukos had liabilities of US$70.1m due within 12 months and liabilities of US$184.4m due beyond that. Offsetting this, it had US$261.7m in cash and US$51.2m in receivables that were due within 12 months. So it can boast US$58.4m more liquid assets than total liabilities.

This state of affairs indicates that Glaukos' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$7.33b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Glaukos boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Glaukos'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.

Over 12 months, Glaukos reported revenue of US$342m, which is a gain of 15%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Glaukos?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Glaukos lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$82m of cash and made a loss of US$159m. But the saving grace is the US$205.0m on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. 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 2 warning signs for Glaukos you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.