Health Check: How Prudently Does Nutex Health (NASDAQ:NUTX) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Nutex Health Inc. (NASDAQ:NUTX) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, 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.

See our latest analysis for Nutex Health

What Is Nutex Health's Debt?

As you can see below, at the end of September 2023, Nutex Health had US$42.3m of debt, up from US$31.3m a year ago. Click the image for more detail. However, because it has a cash reserve of US$26.8m, its net debt is less, at about US$15.5m.

A Look At Nutex Health's Liabilities

We can see from the most recent balance sheet that Nutex Health had liabilities of US$67.3m falling due within a year, and liabilities of US$307.5m due beyond that. Offsetting this, it had US$26.8m in cash and US$54.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$293.2m.

This deficit casts a shadow over the US$125.8m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Nutex Health would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Nutex Health'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, Nutex Health saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Importantly, Nutex Health had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$11m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of US$29m. And until that time we think this is a risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Nutex Health has 3 warning signs we think you should be aware of.

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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