VSee Health (NASDAQ:VSEE) Is Carrying A Fair Bit Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies VSee Health, Inc. (NASDAQ:VSEE) makes use of 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for VSee Health

What Is VSee Health's Debt?

The image below, which you can click on for greater detail, shows that at September 2024 VSee Health had debt of US$9.41m, up from US$930.1k in one year. However, it does have US$2.33m in cash offsetting this, leading to net debt of about US$7.09m.

How Strong Is VSee Health's Balance Sheet?

We can see from the most recent balance sheet that VSee Health had liabilities of US$19.2m falling due within a year, and liabilities of US$1.06m due beyond that. On the other hand, it had cash of US$2.33m and US$3.17m worth of receivables due within a year. So it has liabilities totalling US$14.8m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of US$19.7m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. 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 VSee Health'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.

Over 12 months, VSee Health reported revenue of US$8.1m, which is a gain of 37%, 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.

Caveat Emptor

Despite the top line growth, VSee Health still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$1.6m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$3.0m in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for VSee Health (1 is significant) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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