Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Glaukos Corporation (NYSE:GKOS) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Glaukos's Net Debt?

The image below, which you can click on for greater detail, shows that Glaukos had debt of US$56.8m at the end of September 2024, a reduction from US$282.4m over a year. However, it does have US$262.5m in cash offsetting this, leading to net cash of US$205.7m.

How Healthy Is Glaukos' Balance Sheet?

The latest balance sheet data shows that Glaukos had liabilities of US$71.7m due within a year, and liabilities of US$186.4m falling due after that. Offsetting this, it had US$262.5m in cash and US$56.4m in receivables that were due within 12 months. So it actually has US$60.8m 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$7.92b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Glaukos 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 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.

In the last year Glaukos wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to US$360m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Glaukos?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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$81m of cash and made a loss of US$150m. While this does make the company a bit risky, it's important to remember it has net cash of US$205.7m. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Glaukos you should know about.

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.