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 Glaukos Corporation (NYSE:GKOS) makes use of debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for Glaukos
How Much Debt Does Glaukos Carry?
The chart below, which you can click on for greater detail, shows that Glaukos had US$282.4m in debt in September 2023; about the same as the year before. But on the other hand it also has US$300.9m in cash, leading to a US$18.4m net cash position.
A Look At Glaukos' Liabilities
The latest balance sheet data shows that Glaukos had liabilities of US$67.1m due within a year, and liabilities of US$403.8m falling due after that. Offsetting this, it had US$300.9m in cash and US$39.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$130.8m.
Since publicly traded Glaukos shares are worth a total of US$3.38b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Glaukos also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Glaukos wasn't profitable at an EBIT level, but managed to grow its revenue by 6.6%, to US$304m. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is Glaukos?
Statistically speaking companies that lose money are riskier than those that make money. 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$97m of cash and made a loss of US$129m. But the saving grace is the US$18.4m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For instance, we've identified 2 warning signs for Glaukos that you should be aware of.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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.
