Is InnovAge Holding (NASDAQ:INNV) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is InnovAge Holding's Net Debt?

As you can see below, InnovAge Holding had US$63.6m of debt at December 2024, down from US$67.0m a year prior. But on the other hand it also has US$86.9m in cash, leading to a US$23.3m net cash position.

A Look At InnovAge Holding's Liabilities

Zooming in on the latest balance sheet data, we can see that InnovAge Holding had liabilities of US$145.0m due within 12 months and liabilities of US$101.9m due beyond that. Offsetting these obligations, it had cash of US$86.9m as well as receivables valued at US$53.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$106.9m.

While this might seem like a lot, it is not so bad since InnovAge Holding has a market capitalization of US$411.1m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, InnovAge Holding also has more cash than debt, so we're pretty confident 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 InnovAge Holding can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts .

See our latest analysis for InnovAge Holding

Over 12 months, InnovAge Holding reported revenue of US$807m, which is a gain of 12%, although it did not report any earnings before interest and tax. 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 in the last year InnovAge Holding 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$2.7m and booked a US$26m accounting loss. But the saving grace is the US$23.3m on the balance sheet. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 .

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.