GoodRx Holdings (NASDAQ:GDRX) Has A Rock Solid 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.' 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. As with many other companies GoodRx Holdings, Inc. (NASDAQ:GDRX) makes use of debt. But should shareholders be worried about its use of debt?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for GoodRx Holdings

How Much Debt Does GoodRx Holdings Carry?

The chart below, which you can click on for greater detail, shows that GoodRx Holdings had US$655.8m in debt in September 2023; about the same as the year before. However, its balance sheet shows it holds US$794.9m in cash, so it actually has US$139.1m net cash.

A Look At GoodRx Holdings' Liabilities

The latest balance sheet data shows that GoodRx Holdings had liabilities of US$117.8m due within a year, and liabilities of US$708.9m falling due after that. On the other hand, it had cash of US$794.9m and US$145.2m worth of receivables due within a year. So it actually has US$113.4m more liquid assets than total liabilities.

This surplus suggests that GoodRx Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that GoodRx Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

We note that GoodRx Holdings grew its EBIT by 25% in the last year, and that should make it easier to pay down debt, going forward. 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 GoodRx Holdings'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While GoodRx Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, GoodRx Holdings actually produced more free cash flow than EBIT over the last two years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that GoodRx Holdings has net cash of US$139.1m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$96m, being 382% of its EBIT. So we don't think GoodRx Holdings's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for GoodRx Holdings that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the 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 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.