Is Hawaiian Holdings (NASDAQ:HA) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Hawaiian Holdings, Inc. (NASDAQ:HA) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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 Hawaiian Holdings

What Is Hawaiian Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that Hawaiian Holdings had debt of US$1.65b at the end of June 2022, a reduction from US$2.03b over a year. However, because it has a cash reserve of US$1.54b, its net debt is less, at about US$103.0m.

How Healthy Is Hawaiian Holdings' Balance Sheet?

According to the last reported balance sheet, Hawaiian Holdings had liabilities of US$1.25b due within 12 months, and liabilities of US$2.74b due beyond 12 months. Offsetting this, it had US$1.54b in cash and US$159.2m in receivables that were due within 12 months. So it has liabilities totalling US$2.29b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the US$739.4m 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'd watch its balance sheet closely, without a doubt. At the end of the day, Hawaiian Holdings would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Hawaiian Holdings 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.

In the last year Hawaiian Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 165%, to US$2.2b. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Despite the top line growth, Hawaiian Holdings still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$516m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it vaporized US$172m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Hawaiian Holdings insider transactions.

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.