Does Guardant Health (NASDAQ:GH) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Guardant Health, Inc. (NASDAQ:GH) does have debt on its balance sheet. But is this debt a concern to shareholders?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Guardant Health

How Much Debt Does Guardant Health Carry?

The chart below, which you can click on for greater detail, shows that Guardant Health had US$1.14b in debt in September 2023; about the same as the year before. However, it does have US$1.15b in cash offsetting this, leading to net cash of US$15.5m.

How Strong Is Guardant Health's Balance Sheet?

According to the last reported balance sheet, Guardant Health had liabilities of US$226.8m due within 12 months, and liabilities of US$1.34b due beyond 12 months. On the other hand, it had cash of US$1.15b and US$88.8m worth of receivables due within a year. So it has liabilities totalling US$325.3m more than its cash and near-term receivables, combined.

Since publicly traded Guardant Health shares are worth a total of US$2.75b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Guardant Health boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Guardant Health'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.

Over 12 months, Guardant Health reported revenue of US$536m, which is a gain of 24%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Guardant Health?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Guardant Health lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$363m of cash and made a loss of US$432m. While this does make the company a bit risky, it's important to remember it has net cash of US$15.5m. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, Guardant Health may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. We've identified 2 warning signs with Guardant Health , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.