Does 1Life Healthcare (NASDAQ:ONEM) Have A Healthy Balance Sheet?

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.' 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 1Life Healthcare, Inc. (NASDAQ:ONEM) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for 1Life Healthcare

What Is 1Life Healthcare's Net Debt?

As you can see below, at the end of September 2021, 1Life Healthcare had US$309.4m of debt, up from US$237.9m a year ago. Click the image for more detail. But it also has US$590.0m in cash to offset that, meaning it has US$280.7m net cash.

A Look At 1Life Healthcare's Liabilities

We can see from the most recent balance sheet that 1Life Healthcare had liabilities of US$209.0m falling due within a year, and liabilities of US$712.9m due beyond that. Offsetting these obligations, it had cash of US$590.0m as well as receivables valued at US$102.7m due within 12 months. So its liabilities total US$229.1m more than the combination of its cash and short-term receivables.

Since publicly traded 1Life Healthcare shares are worth a total of US$4.01b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, 1Life Healthcare 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 1Life Healthcare's ability to maintain a healthy balance sheet going forward. 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 1Life Healthcare wasn't profitable at an EBIT level, but managed to grow its revenue by 53%, to US$515m. With any luck the company will be able to grow its way to profitability.

So How Risky Is 1Life Healthcare?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that 1Life Healthcare had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$70m of cash and made a loss of US$167m. But the saving grace is the US$280.7m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 1Life Healthcare's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. 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 - 1Life Healthcare 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.

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.

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