Yahoo Finance Is Surgical Innovations Group (LON:SUN) Using Too Much Debt?
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. We note that Surgical Innovations Group plc (LON:SUN) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for Surgical Innovations Group
How Much Debt Does Surgical Innovations Group Carry?
The image below, which you can click on for greater detail, shows that Surgical Innovations Group had debt of UK£1.88m at the end of December 2021, a reduction from UK£2.18m over a year. But on the other hand it also has UK£3.64m in cash, leading to a UK£1.76m net cash position.
A Look At Surgical Innovations Group's Liabilities
Zooming in on the latest balance sheet data, we can see that Surgical Innovations Group had liabilities of UK£4.14m due within 12 months and liabilities of UK£915.0k due beyond that. Offsetting these obligations, it had cash of UK£3.64m as well as receivables valued at UK£1.70m due within 12 months. So it can boast UK£285.0k more liquid assets than total liabilities.
Having regard to Surgical Innovations Group's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the UK£20.5m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Surgical Innovations Group 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 Surgical Innovations Group'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 Surgical Innovations Group wasn't profitable at an EBIT level, but managed to grow its revenue by 44%, to UK£9.1m. With any luck the company will be able to grow its way to profitability.
So How Risky Is Surgical Innovations Group?
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 Surgical Innovations Group lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through UK£1.1m of cash and made a loss of UK£456k. With only UK£1.76m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Surgical Innovations Group may be on a path to profitability. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Surgical Innovations Group (1 is significant!) that you should be aware of before investing here.
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.
