Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that AtriCure, Inc. (NASDAQ:ATRC) does have debt on its balance sheet. But is this debt a concern to shareholders?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is AtriCure's Debt?

As you can see below, AtriCure had US$61.9m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$130.3m in cash offsetting this, leading to net cash of US$68.5m.

How Strong Is AtriCure's Balance Sheet?

We can see from the most recent balance sheet that AtriCure had liabilities of US$74.4m falling due within a year, and liabilities of US$75.6m due beyond that. Offsetting this, it had US$130.3m in cash and US$54.9m in receivables that were due within 12 months. So it can boast US$35.2m more liquid assets than total liabilities.

This state of affairs indicates that AtriCure's 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$1.76b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, AtriCure 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 AtriCure'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, AtriCure reported revenue of US$448m, which is a gain of 18%, 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 AtriCure?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that AtriCure had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$1.2m of cash and made a loss of US$39m. While this does make the company a bit risky, it's important to remember it has net cash of US$68.5m. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for AtriCure you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.