June 19, 2024

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that AxoGen, Inc. (NASDAQ:AXGN) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for AxoGen
As you can see below, AxoGen had US$50.1m of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$58.0m in cash, so it actually has US$7.89m net cash.
The latest balance sheet data shows that AxoGen had liabilities of US$23.6m due within a year, and liabilities of US$70.8m falling due after that. Offsetting these obligations, it had cash of US$58.0m as well as receivables valued at US$20.4m due within 12 months. So its liabilities total US$16.0m more than the combination of its cash and short-term receivables.
Of course, AxoGen has a market capitalization of US$486.1m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, AxoGen also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine AxoGen's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year AxoGen's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.
Statistically speaking companies that lose money are riskier than those that make money. And we do note that AxoGen had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$45m and booked a US$32m accounting loss. But the saving grace is the US$7.89m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. Be aware that AxoGen is showing 2 warning signs in our investment analysis , you should know about…
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
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AxoGen, Inc., together with its subsidiaries, develops and markets surgical solutions for physical damage or transection to peripheral nerves.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
Read more about these checks in the individual report sections or in our analysis model.
Flawless balance sheet and slightly overvalued.
Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.
AxoGen, Inc., together with its subsidiaries, develops and markets surgical solutions for physical damage or transection to peripheral nerves.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
Read more about these checks in the individual report sections or in our analysis model.
Flawless balance sheet and slightly overvalued.
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