Is Streamline Health Solutions (NASDAQ:STRM) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. As with many other companies Streamline Health Solutions, Inc. (NASDAQ:STRM) makes use of debt. But should shareholders be worried about its use of debt?

We've discovered 3 warning signs about Streamline Health Solutions. View them for free.

What Risk Does Debt Bring?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Streamline Health Solutions Carry?

You can click the graphic below for the historical numbers, but it shows that as of January 2025 Streamline Health Solutions had US$13.1m of debt, an increase on US$10.6m, over one year. However, it also had US$2.18m in cash, and so its net debt is US$10.9m.

How Strong Is Streamline Health Solutions' Balance Sheet?

The latest balance sheet data shows that Streamline Health Solutions had liabilities of US$23.1m due within a year, and liabilities of US$240.0k falling due after that. Offsetting these obligations, it had cash of US$2.18m as well as receivables valued at US$3.16m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$18.0m.

The deficiency here weighs heavily on the US$10.5m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Streamline Health Solutions would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Streamline Health Solutions's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for Streamline Health Solutions

In the last year Streamline Health Solutions had a loss before interest and tax, and actually shrunk its revenue by 21%, to US$18m. To be frank that doesn't bode well.

Caveat Emptor

While Streamline Health Solutions's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable US$8.0m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through US$2.4m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. 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. Be aware that Streamline Health Solutions is showing 3 warning signs in our investment analysis , and 2 of those are concerning...

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.