Is Tabula Rasa HealthCare (NASDAQ:TRHC) Using Too Much 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 note that Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Tabula Rasa HealthCare

How Much Debt Does Tabula Rasa HealthCare Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Tabula Rasa HealthCare had US$350.5m of debt, an increase on US$235.9m, over one year. However, it also had US$11.3m in cash, and so its net debt is US$339.1m.

How Strong Is Tabula Rasa HealthCare's Balance Sheet?

According to the last reported balance sheet, Tabula Rasa HealthCare had liabilities of US$65.3m due within 12 months, and liabilities of US$368.4m due beyond 12 months. On the other hand, it had cash of US$11.3m and US$60.3m worth of receivables due within a year. So its liabilities total US$362.1m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$220.2m 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 definitely think shareholders need to watch this one closely. After all, Tabula Rasa HealthCare would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Tabula Rasa HealthCare'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, Tabula Rasa HealthCare reported revenue of US$323m, which is a gain of 10.0%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Tabula Rasa HealthCare produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$68m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of US$27m over the last twelve months. That means it's on the risky side of things. 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. For instance, we've identified 5 warning signs for Tabula Rasa HealthCare that you should be aware of.

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.