Is Heska (NASDAQ:HSKA) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Heska Corporation (NASDAQ:HSKA) makes use of debt. 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, 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Heska

How Much Debt Does Heska Carry?

The image below, which you can click on for greater detail, shows that at June 2022 Heska had debt of US$100.1m, up from US$83.9m in one year. However, it does have US$171.9m in cash offsetting this, leading to net cash of US$71.8m.

A Look At Heska's Liabilities

The latest balance sheet data shows that Heska had liabilities of US$39.5m due within a year, and liabilities of US$130.0m falling due after that. Offsetting this, it had US$171.9m in cash and US$36.2m in receivables that were due within 12 months. So it can boast US$38.6m more liquid assets than total liabilities.

This surplus suggests that Heska has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Heska 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 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.

In the last year Heska wasn't profitable at an EBIT level, but managed to grow its revenue by 4.6%, to US$258m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Heska?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Heska lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$20m of cash and made a loss of US$18m. With only US$71.8m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. For riskier companies like Heska I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.