Is Avinger (NASDAQ:AVGR) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Avinger, Inc. (NASDAQ:AVGR) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Avinger

How Much Debt Does Avinger Carry?

The image below, which you can click on for greater detail, shows that at September 2020 Avinger had debt of US$12.5m, up from US$8.58m in one year. However, it does have US$25.3m in cash offsetting this, leading to net cash of US$12.8m.

How Strong Is Avinger's Balance Sheet?

The latest balance sheet data shows that Avinger had liabilities of US$18.1m due within a year, and liabilities of US$4.40m falling due after that. Offsetting this, it had US$25.3m in cash and US$1.34m in receivables that were due within 12 months. So it can boast US$4.18m more liquid assets than total liabilities.

This short term liquidity is a sign that Avinger could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Avinger boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Avinger'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.

Over 12 months, Avinger saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

So How Risky Is Avinger?

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 Avinger 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$15m and booked a US$23m accounting loss. With only US$12.8m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Avinger (of which 1 is a bit concerning!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.