Is Phreesia (NYSE:PHR) Weighed On By Its Debt Load?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Phreesia, Inc. (NYSE:PHR) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Phreesia

What Is Phreesia's Debt?

You can click the graphic below for the historical numbers, but it shows that Phreesia had US$2.60m of debt in July 2024, down from US$3.88m, one year before. But on the other hand it also has US$81.8m in cash, leading to a US$79.2m net cash position.

How Strong Is Phreesia's Balance Sheet?

According to the last reported balance sheet, Phreesia had liabilities of US$102.0m due within 12 months, and liabilities of US$8.90m due beyond 12 months. On the other hand, it had cash of US$81.8m and US$61.3m worth of receivables due within a year. So it can boast US$32.2m more liquid assets than total liabilities.

This short term liquidity is a sign that Phreesia could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Phreesia boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Phreesia can strengthen its balance sheet over time. 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, Phreesia reported revenue of US$390m, which is a gain of 22%, 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 Phreesia?

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 Phreesia had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$25m of cash and made a loss of US$100m. While this does make the company a bit risky, it's important to remember it has net cash of US$79.2m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Phreesia may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Phreesia you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.