Health Check: How Prudently Does Streamline Health Solutions (NASDAQ:STRM) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Streamline Health Solutions, Inc. (NASDAQ:STRM) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Streamline Health Solutions

What Is Streamline Health Solutions's Net Debt?

The chart below, which you can click on for greater detail, shows that Streamline Health Solutions had US$9.84m in debt in October 2022; about the same as the year before. However, it does have US$11.7m in cash offsetting this, leading to net cash of US$1.86m.

How Strong Is Streamline Health Solutions' Balance Sheet?

According to the last reported balance sheet, Streamline Health Solutions had liabilities of US$18.6m due within 12 months, and liabilities of US$9.47m due beyond 12 months. Offsetting this, it had US$11.7m in cash and US$4.15m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$12.2m.

Given Streamline Health Solutions has a market capitalization of US$120.6m, it's hard to believe these liabilities pose much 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, Streamline Health Solutions 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 it is future earnings, more than anything, that will determine Streamline Health Solutions'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, Streamline Health Solutions reported revenue of US$24m, which is a gain of 69%, 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 Streamline Health Solutions?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Streamline Health Solutions 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$6.5m and booked a US$9.2m accounting loss. Given it only has net cash of US$1.86m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Streamline Health Solutions may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Streamline Health Solutions you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.