Allscripts Healthcare Solutions (NASDAQ:MDRX) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Allscripts Healthcare Solutions

What Is Allscripts Healthcare Solutions's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2020 Allscripts Healthcare Solutions had debt of US$1.04b, up from US$844.8m in one year. However, it does have US$199.0m in cash offsetting this, leading to net debt of about US$837.2m.

How Healthy Is Allscripts Healthcare Solutions's Balance Sheet?

According to the last reported balance sheet, Allscripts Healthcare Solutions had liabilities of US$1.11b due within 12 months, and liabilities of US$834.6m due beyond 12 months. On the other hand, it had cash of US$199.0m and US$515.5m worth of receivables due within a year. So it has liabilities totalling US$1.2b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of US$1.44b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 Allscripts Healthcare Solutions 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.

In the last year Allscripts Healthcare Solutions's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months Allscripts Healthcare Solutions produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$3.0m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$58.8m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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. For example, we've discovered 1 warning sign for Allscripts Healthcare Solutions that you should be aware of before investing here.

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.

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