We believe Cutera (NASDAQ: CUTR) can stay on top of its debt
Howard Marks put it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried. So it can be obvious that you need to consider debt, when you think about how risky a given stock is, because too much debt can sink a business. Like many other companies Cutera, Inc. (NASDAQ: CUTR) uses debt. But should shareholders be concerned about its use of debt?
When is Debt a Problem?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company can’t meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. Of course, many companies use debt to finance their growth without negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
Check out our latest analysis for Cutera
What is Cutera’s debt?
The image below, which you can click for more details, shows that as of September 2021, Cutera was in debt of $ 134.0 million, up from $ 7.17 million in a year. But on the other hand, it also has $ 162.5 million in cash, which leads to a net cash position of $ 28.5 million.
How healthy is Cutera’s track record?
We can see from the most recent balance sheet that Cutera had liabilities of US $ 63.1 million maturing within one year, and liabilities of US $ 150.0 million maturing beyond that. . In compensation for these obligations, he had cash of US $ 162.5 million as well as receivables valued at US $ 31.2 million maturing within 12 months. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by $ 19.5 million.
Given that Cutera has a market cap of US $ 664.0 million, it’s hard to believe that these liabilities pose a big threat. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time. While he has some liabilities to note, Cutera also has more cash than debt, so we’re pretty confident he can handle his debt safely.
We also note that Cutera improved its EBIT from a loss last year to a positive amount of US $ 6.1 million. There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine Cutera’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Finally, a business can only repay its debts with hard cash, not with accounting profits. While Cutera has net cash on its balance sheet, it’s always worth looking at its ability to convert earnings before interest and taxes (EBIT) into free cash flow, to help us understand how fast it’s building (or erodes) that cash balance. . In the most recent year, Cutera recorded free cash flow of 35% of its EBIT, which is lower than expected. This low cash conversion makes debt management more difficult.
We could understand if investors are concerned about Cutera’s liabilities, but we can take comfort in the fact that she has net cash of $ 28.5 million. We are therefore not concerned with Cutera’s use of the debt. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. Concrete example: we have spotted 2 warning signs for Cutera you need to be aware of it, and one of them is potentially serious.
If you want to invest in companies that can generate profits without the burden of debt, check out this free list of growing companies that have net cash on the balance sheet.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.