Is Health Catalyst (NASDAQ:HCAT) a risky investment?

Some people say that volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said, “Volatility is not synonymous with risk.” In other words, financially smart people seem to know that debt (usually associated with bankruptcy) is a very important factor when assessing a company’s risk.Like many other companies Health Catalyst Co., Ltd. (NASDAQ:HCAT) uses debt. But the more important question is how much risk that debt creates.

When is debt a problem?

Generally, debt only becomes a real problem when a company cannot easily pay off the debt, either by raising capital or with its own cash flow. If the situation gets too bad, lenders may take control of your business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, resulting in permanent shareholder dilution. The advantage of debt, of course, is that it is often cheap capital, especially when it replaces dilution in a company that can be reinvested at a high rate of return. The first step when considering a company’s debt levels is to consider its cash and debt together.

Check out our latest analysis for Health Catalyst.

How much debt does Health Catalyst have?

As you can see below, Health Catalyst had debt of US$227.7m at September 2023, which is about the same as a year ago. Click on the graph to see details. However, it also held US$347.7m in cash, giving it a net cash position of US$120m.

How healthy is Health Catalyst’s balance sheet?

The latest balance sheet data shows that Health Catalyst had liabilities of US$84.3m falling due within a year, and liabilities of US$246.3m falling due after that. Offsetting this, it had cash of US$347.7m and his receivables of US$46.7m due within 12 months. Therefore, the company can boast $63.9 million more liquid assets than other companies. total liabilities.

This short-term liquidity suggests that Health Catalyst’s balance sheet is not as stretched, so it could probably easily pay off its debt. Simply put, the fact that Health Catalyst has more cash than debt suggests that it can manage its debt safely. There’s no question that we learn most about debt from the balance sheet. But ultimately, Health Catalyst’s ability to strengthen its balance sheet over the long term will depend on the future profitability of its business.If you’re focused on the future, check this out free A report showing analyst profit forecasts.

Last year, Health Catalyst wasn’t profitable at an EBIT level, but it was able to grow its revenue by 6.7% to US$290m. We usually want unprofitable companies to grow faster, but each has their own circumstances.

So just how dangerous are health catalysts?

There is no doubt that, in general, loss-making companies are riskier than profitable companies. And to be honest, Health Catalyst made an earnings before interest and tax (EBIT) loss last year. In fact, it burned through US$44m in cash during that time, resulting in a loss of US$124m. This makes the company a bit of a risk, but it’s important to remember that it has US$120 million in net cash. That means spending at the current pace could continue for more than two years. While the balance sheet seems liquid enough, debt always makes us a little worried when a company doesn’t generate free cash flow regularly. There’s no question that we learn most about debt from the balance sheet. Ultimately, however, any company can contain risks that exist outside the balance sheet. To do so, you need to know the following: two warning signs Found on Health Catalyst.

If you’re interested in investing in a business that allows you to grow profits without taking on debt, check this out free A list of growing companies that have net cash on their 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 using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.