Is Hawaiian Holdings (NASDAQ:HA) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Hawaiian Holdings, Inc. (NASDAQ:HA) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Hawaiian Holdings

What Is Hawaiian Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Hawaiian Holdings had US$1.80b of debt, an increase on US$1.15b, over one year. On the flip side, it has US$1.73b in cash leading to net debt of about US$69.1m.

How Strong Is Hawaiian Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hawaiian Holdings had liabilities of US$1.11b due within 12 months and liabilities of US$2.95b due beyond that. On the other hand, it had cash of US$1.73b and US$164.1m worth of receivables due within a year. So it has liabilities totalling US$2.17b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$926.8m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Hawaiian Holdings would likely require a major re-capitalisation if it had to pay its creditors today. 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 Hawaiian Holdings 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, Hawaiian Holdings reported revenue of US$1.6b, which is a gain of 89%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

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$443m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of US$145m. In the meantime, we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Hawaiian Holdings you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.