Is Natera (NASDAQ:NTRA) a risky investment?

Li Lu, an external fund manager backed by Berkshire Hathaway’s Charlie Munger, says, “The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.” It has even been stated. So when you think about the risk of a particular stock, it might be obvious that you need to consider debt. Because too much debt can sink a company. the important thing is, Natera Co., Ltd. (NASDAQ:NTRA) has debt. But is this debt a concern for shareholders?

When is debt dangerous?

Debt supports a company until the company has difficulty paying it back with new capital or free cash flow. In the worst case scenario, a company may go bankrupt if it is unable to pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, resulting in permanent shareholder dilution. However, as an alternative to dilution, debt can be a very good tool for companies 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.

Check out our latest analysis for Natera.

How much debt does Natera have?

The graph below, which you can click on for greater detail, shows that Natera had debt of US$363.3m at December 2023. Almost the same as last year. However, it also held US$879m in cash, resulting in a net cash position of US$515.6m.

See Natella’s debt

The latest balance sheet data shows that Natera had liabilities of US$307.3m due within a year, and liabilities of US$369.1m due beyond that. Offsetting these obligations, the company had cash of US$879.0m and receivables valued at US$278.3m due within 12 months.So it’s actually 480.9 million USD more There are more current assets than total liabilities.

Natera’s balance sheet is not as tight, so this short-term liquidity likely means that Natera could easily repay its debt. Simply put, Natera boasts net cash, so we can say it doesn’t have a lot of debt. There’s no question that we learn most about debt from the balance sheet. But more than anything else, future earnings will determine whether Natera can maintain a healthy balance sheet going forward.If you’re focused on the future, check this out free A report showing analyst profit forecasts.

Natera reported revenues of US$1.1 billion in the 12-month period. This is an increase of 32%. However, it does not report earnings before interest and taxes. With any luck, the company will be able to grow to profitability.

So how dangerous is Natera?

There is no doubt that, in general, loss-making companies are riskier than profitable companies. We also note that Natera made an earnings before interest and tax (EBIT) loss last year. It also experienced a negative free cash outflow of USD 286 million during the same period, resulting in an accounting loss of USD 435 million. This makes the company a bit risky, but it’s important to remember that it has net cash of US$515.6m. That means spending at the current pace could continue for more than two years. Natera’s revenue growth has been impressive over the last year, so it may be in a position to return to profitability before long. Unprofitable companies often involve risk, but they can also offer great rewards. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risk resides within the balance sheet, far from it.Note that Natera is shown 2 warning signs in investment analysis you should know…

If you’re interested in investing in a business that allows you to grow profits without taking on debt, check this out free A list of growing companies that have net cash on their balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.