Does Quest Resource Holding (NASDAQ:QRHC) Have A Healthy Balance Sheet?

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 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 Quest Resource Holding Corporation (NASDAQ:QRHC) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Quest Resource Holding Carry?

The chart below, which you can click on for greater detail, shows that Quest Resource Holding had US$71.2m in debt in June 2025; about the same as the year before. Net debt is about the same, since the it doesn't have much cash.

How Healthy Is Quest Resource Holding's Balance Sheet?

The latest balance sheet data shows that Quest Resource Holding had liabilities of US$39.8m due within a year, and liabilities of US$70.3m falling due after that. Offsetting these obligations, it had cash of US$449.0k as well as receivables valued at US$53.7m due within 12 months. So its liabilities total US$56.0m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$30.0m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Quest Resource Holding would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Quest Resource Holding can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Quest Resource Holding

In the last year Quest Resource Holding had a loss before interest and tax, and actually shrunk its revenue by 5.2%, to US$271m. We would much prefer see growth.

Caveat Emptor

Importantly, Quest Resource Holding had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$4.1m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of US$4.3m over the last twelve months. So suffice it to say we consider the stock to be risky. 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. For instance, we've identified 3 warning signs for Quest Resource Holding that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.