HeartCore Enterprises (NASDAQ:HTCR) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, '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. We can see that HeartCore Enterprises, Inc. (NASDAQ:HTCR) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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. 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 HeartCore Enterprises

How Much Debt Does HeartCore Enterprises Carry?

As you can see below, HeartCore Enterprises had US$2.35m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$4.24m in cash offsetting this, leading to net cash of US$1.90m.

How Healthy Is HeartCore Enterprises' Balance Sheet?

According to the last reported balance sheet, HeartCore Enterprises had liabilities of US$15.2m due within 12 months, and liabilities of US$5.12m due beyond 12 months. Offsetting this, it had US$4.24m in cash and US$2.58m in receivables that were due within 12 months. So its liabilities total US$13.5m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because HeartCore Enterprises is worth US$23.6m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, HeartCore Enterprises boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if HeartCore Enterprises can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, HeartCore Enterprises made a loss at the EBIT level, and saw its revenue drop to US$17m, which is a fall of 3.2%. That's not what we would hope to see.

So How Risky Is HeartCore Enterprises?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that HeartCore Enterprises had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$4.8m of cash and made a loss of US$8.4m. With only US$1.90m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For instance, we've identified 4 warning signs for HeartCore Enterprises (2 are potentially serious) you should be aware of.

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.