Artivion (NYSE:AORT) makes moderate use of debt
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Like many other companies Artivion, Inc. (NYSE:AORT) uses debt. But should shareholders worry about its use of debt?
Why is debt risky?
Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. 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. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business has is to look at its cash and debt together.
Check out our latest analysis for Artivion
What is Artivion’s debt?
The chart below, which you can click on for more details, shows that Artivion had $308.5 million in debt as of June 2022; about the same as the previous year. However, he also had $40.4 million in cash, so his net debt is $268.1 million.
How healthy is Artivion’s balance sheet?
Zooming in on the latest balance sheet data, we can see that Artivion had liabilities of US$41.6 million due within 12 months and liabilities of US$441.7 million due beyond. On the other hand, it had a cash position of 40.4 million dollars and 65.6 million dollars of receivables at less than one year. It therefore has liabilities totaling $377.4 million more than its cash and short-term receivables, combined.
This shortfall is sizable relative to its market capitalization of US$589.0 million, so it suggests shareholders watch Artivion’s use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet quickly. When analyzing debt levels, the balance sheet is the obvious starting point. But it is future earnings, more than anything, that will determine Artivion’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.
Year-over-year, Artivion reported revenue of $309 million, a 10% gain, although it reported no earnings before interest and taxes. We generally like to see faster growth from unprofitable companies, but each in its own way.
Importantly, Artivion posted a loss in earnings before interest and taxes (EBIT) over the past year. To be precise, the EBIT loss amounted to $4.2 million. Considering that alongside the liabilities mentioned above, this doesn’t give us much confidence that the company should use so much debt. So we think its balance sheet is a little stretched, but not beyond repair. However, it doesn’t help that he’s burned through $21 million in cash in the past year. So, to be frank, we think it’s risky. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Be aware that Artivion displays 3 warning signs in our investment analysis and 1 of them is potentially serious…
In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.
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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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