Health Catalyst (NASDAQ:HCAT) Has Debt But No Earnings; Should You Worry?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 can see that Health Catalyst, Inc. (NASDAQ:HCAT) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Health Catalyst

How Much Debt Does Health Catalyst Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Health Catalyst had US$345.0m of debt, an increase on US$227.7m, over one year. However, it does have US$387.3m in cash offsetting this, leading to net cash of US$42.2m.

How Healthy Is Health Catalyst's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Health Catalyst had liabilities of US$323.8m due within 12 months and liabilities of US$134.2m due beyond that. On the other hand, it had cash of US$387.3m and US$53.0m worth of receivables due within a year. So it has liabilities totalling US$17.7m more than its cash and near-term receivables, combined.

Since publicly traded Health Catalyst shares are worth a total of US$301.2m, 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, Health Catalyst boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Health Catalyst 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.

In the last year Health Catalyst wasn't profitable at an EBIT level, but managed to grow its revenue by 4.2%, to US$302m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Health Catalyst?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Health Catalyst had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$16m of cash and made a loss of US$79m. While this does make the company a bit risky, it's important to remember it has net cash of US$42.2m. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Be aware that Health Catalyst is showing 1 warning sign in our investment analysis , you should know about...

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.