Is Health Catalyst (NASDAQ:HCAT) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Health Catalyst, Inc. (NASDAQ:HCAT) 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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Health Catalyst

How Much Debt Does Health Catalyst Carry?

The chart below, which you can click on for greater detail, shows that Health Catalyst had US$226.9m in debt in March 2023; about the same as the year before. However, it does have US$356.9m in cash offsetting this, leading to net cash of US$130.0m.

A Look At Health Catalyst's Liabilities

According to the last reported balance sheet, Health Catalyst had liabilities of US$102.5m due within 12 months, and liabilities of US$244.7m due beyond 12 months. Offsetting this, it had US$356.9m in cash and US$62.6m in receivables that were due within 12 months. So it actually has US$72.3m more liquid assets than total liabilities.

This short term liquidity is a sign that Health Catalyst could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Health Catalyst has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. 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.

Over 12 months, Health Catalyst reported revenue of US$282m, which is a gain of 11%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Health Catalyst?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Health Catalyst had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$59m and booked a US$148m accounting loss. But the saving grace is the US$130.0m on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the 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. For example - Health Catalyst has 2 warning signs we think you should be aware of.

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.