Heartland Express (NASDAQ:HTLD) Is Making Moderate Use Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Heartland Express, Inc. (NASDAQ:HTLD) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Heartland Express

How Much Debt Does Heartland Express Carry?

As you can see below, Heartland Express had US$245.7m of debt at March 2024, down from US$337.2m a year prior. However, it also had US$23.8m in cash, and so its net debt is US$221.9m.

A Look At Heartland Express' Liabilities

According to the last reported balance sheet, Heartland Express had liabilities of US$127.5m due within 12 months, and liabilities of US$476.2m due beyond 12 months. On the other hand, it had cash of US$23.8m and US$113.1m worth of receivables due within a year. So its liabilities total US$466.8m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Heartland Express has a market capitalization of US$974.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Heartland Express 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.

In the last year Heartland Express's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Heartland Express produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$29m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$41m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. For riskier companies like Heartland Express I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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