InnovAge Holding (NASDAQ:INNV) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. As with many other companies InnovAge Holding Corp. (NASDAQ:INNV) 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for InnovAge Holding

What Is InnovAge Holding's Debt?

The image below, which you can click on for greater detail, shows that InnovAge Holding had debt of US$67.0m at the end of December 2023, a reduction from US$70.3m over a year. However, it does have US$98.8m in cash offsetting this, leading to net cash of US$31.8m.

How Healthy Is InnovAge Holding's Balance Sheet?

According to the last reported balance sheet, InnovAge Holding had liabilities of US$123.1m due within 12 months, and liabilities of US$108.2m due beyond 12 months. On the other hand, it had cash of US$98.8m and US$43.7m worth of receivables due within a year. So it has liabilities totalling US$88.8m more than its cash and near-term receivables, combined.

Since publicly traded InnovAge Holding shares are worth a total of US$637.4m, 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, InnovAge Holding 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 ultimately the future profitability of the business will decide if InnovAge Holding 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 InnovAge Holding wasn't profitable at an EBIT level, but managed to grow its revenue by 4.6%, to US$721m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is InnovAge Holding?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months InnovAge Holding lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$13m and booked a US$32m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$31.8m. 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. For riskier companies like InnovAge Holding 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, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.