Health Check: How Prudently Does 1Life Healthcare (NASDAQ:ONEM) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, 1Life Healthcare, Inc. (NASDAQ:ONEM) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for 1Life Healthcare

What Is 1Life Healthcare's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2020 1Life Healthcare had debt of US$241.2m, up from US$10.5m in one year. But it also has US$683.0m in cash to offset that, meaning it has US$441.8m net cash.

A Look At 1Life Healthcare's Liabilities

The latest balance sheet data shows that 1Life Healthcare had liabilities of US$117.4m due within a year, and liabilities of US$405.1m falling due after that. Offsetting these obligations, it had cash of US$683.0m as well as receivables valued at US$68.4m due within 12 months. So it actually has US$228.9m more liquid assets than total liabilities.

This short term liquidity is a sign that 1Life Healthcare could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, 1Life Healthcare 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 ultimately the future profitability of the business will decide if 1Life Healthcare 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.

Over 12 months, 1Life Healthcare reported revenue of US$380m, which is a gain of 38%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is 1Life Healthcare?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year 1Life Healthcare 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$68m and booked a US$89m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$441.8m. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, 1Life Healthcare may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for 1Life Healthcare you should know about.

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.

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