Does ViewRay (NASDAQ:VRAY) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, ViewRay, Inc. (NASDAQ:VRAY) does carry debt. But is this debt a concern to shareholders?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for ViewRay

What Is ViewRay's Debt?

The chart below, which you can click on for greater detail, shows that ViewRay had US$55.6m in debt in December 2019; about the same as the year before. However, its balance sheet shows it holds US$226.8m in cash, so it actually has US$171.2m net cash.

How Strong Is ViewRay's Balance Sheet?

The latest balance sheet data shows that ViewRay had liabilities of US$59.1m due within a year, and liabilities of US$74.8m falling due after that. On the other hand, it had cash of US$226.8m and US$16.8m worth of receivables due within a year. So it actually has US$109.8m more liquid assets than total liabilities.

This surplus strongly suggests that ViewRay has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, ViewRay 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 ViewRay'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.

Over 12 months, ViewRay reported revenue of US$88m, which is a gain of 8.4%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is ViewRay?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that ViewRay had negative earnings before interest and tax (EBIT), over the last year. Indeed, in that time it burnt through US$87m of cash and made a loss of US$120m. But at least it has US$171.2m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for ViewRay that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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