Is Natera (NASDAQ:NTRA) weighed down by its debt?

Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The biggest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. Above all, Natera, Inc. (NASDAQ:NTRA) is in debt. But the real question is whether this debt makes the business risky.

Why is debt risky?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. If things go really bad, lenders can take over the business. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, many companies use debt to finance their growth, without any negative consequences. When we think about a company’s use of debt, we first look at cash and debt together.

See our latest analysis for Natera

What is Natera’s debt?

The graph below, which you can click on for more details, shows that Natera had $330.8 million in debt as of March 2022; about the same as the previous year. However, he has $752.0 million in cash to offset this, which translates to net cash of $421.2 million.

NasdaqGS: NTRA Debt to Equity History as of May 30, 2022

A look at Natera’s responsibilities

According to the last published balance sheet, Natera had liabilities of $231.1 million maturing within 12 months and liabilities of $371.3 million maturing beyond 12 months. In compensation for these obligations, it had cash of US$752.0 million as well as receivables valued at US$167.9 million and maturing within 12 months. So he actually has US$317.5 million After liquid assets than total liabilities.

This surplus suggests that Natera has a conservative balance sheet, and could probably eliminate its debt without too much difficulty. In short, Natera has clean cash, so it’s fair to say that it doesn’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Natera’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Last year, Natera was not profitable in terms of EBIT, but managed to increase its turnover by 49%, to $667 million. The shareholders probably have their fingers crossed that she can make a profit.

So how risky is Natera?

We have no doubt that loss-making companies are, in general, more risky than profitable companies. And the fact is that over the last twelve months, Natera has lost money in earnings before interest and taxes (EBIT). And during the same period, it recorded a negative free cash outflow of US$453 million and recorded a book loss of US$546 million. But the saving grace is the US$421.2 million on the balance sheet. This pot means that the company can continue to spend on growth for at least two years, at current rates. Natera’s revenue growth has shone over the past year, so it may well be in a position to turn a profit in due course. Nonprofits are often risky, but they can also offer great rewards. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Know that Natera shows 3 warning signs in our investment analysis you should know…

If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-flowing growth stocks without further ado.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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