In This Article:
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Anika Therapeutics, Inc. (NASDAQ:ANIK) does carry debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for Anika Therapeutics
What Is Anika Therapeutics's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2020 Anika Therapeutics had US$25.0m of debt, an increase on none, over one year. But it also has US$124.8m in cash to offset that, meaning it has US$99.8m net cash.
How Healthy Is Anika Therapeutics' Balance Sheet?
According to the last reported balance sheet, Anika Therapeutics had liabilities of US$31.1m due within 12 months, and liabilities of US$100.7m due beyond 12 months. Offsetting this, it had US$124.8m in cash and US$23.0m in receivables that were due within 12 months. So it can boast US$15.9m more liquid assets than total liabilities.
This short term liquidity is a sign that Anika Therapeutics could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Anika Therapeutics has more cash than debt is arguably a good indication that it can manage its debt safely.
In fact Anika Therapeutics's saving grace is its low debt levels, because its EBIT has tanked 72% in the last twelve months. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Anika Therapeutics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.