Does Molina Healthcare (NYSE:MOH) Have A Healthy Balance Sheet?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Molina Healthcare, Inc. (NYSE:MOH) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Molina Healthcare

What Is Molina Healthcare's Net Debt?

As you can see below, Molina Healthcare had US$2.18b of debt, at September 2023, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$9.68b in cash, so it actually has US$7.50b net cash.

A Look At Molina Healthcare's Liabilities

The latest balance sheet data shows that Molina Healthcare had liabilities of US$8.49b due within a year, and liabilities of US$2.50b falling due after that. Offsetting this, it had US$9.68b in cash and US$2.46b in receivables that were due within 12 months. So it actually has US$1.15b more liquid assets than total liabilities.

This surplus suggests that Molina Healthcare has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Molina Healthcare boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, Molina Healthcare grew its EBIT by 23% in the last year, and that should make it easier to pay down debt, going forward. 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 Molina Healthcare'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Molina Healthcare has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Molina Healthcare actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Molina Healthcare has US$7.50b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$2.0b, being 172% of its EBIT. So is Molina Healthcare's debt a risk? It doesn't seem so to us. Another factor that would give us confidence in Molina Healthcare would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

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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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.