Is Heska (NASDAQ:HSKA) A Risky Investment?

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. As with many other companies Heska Corporation (NASDAQ:HSKA) makes use of debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 Heska

What Is Heska's Debt?

The image below, which you can click on for greater detail, shows that at December 2021 Heska had debt of US$99.9m, up from US$49.0m in one year. But it also has US$223.6m in cash to offset that, meaning it has US$123.6m net cash.

How Strong Is Heska's Balance Sheet?

We can see from the most recent balance sheet that Heska had liabilities of US$43.9m falling due within a year, and liabilities of US$124.3m due beyond that. Offsetting these obligations, it had cash of US$223.6m as well as receivables valued at US$35.7m due within 12 months. So it can boast US$91.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Heska could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Heska 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 Heska's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Heska reported revenue of US$254m, which is a gain of 29%, 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 Heska?

Although Heska had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$4.5m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Keeping in mind its 29% revenue growth over the last year, we think there's a decent chance the company is on track. We'd see further strong growth as an optimistic indication. 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 example - Heska has 3 warning signs we think 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.