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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, InnovAge Holding Corp. (NASDAQ:INNV) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does InnovAge Holding Carry?

You can click the graphic below for the historical numbers, but it shows that InnovAge Holding had US$67.0m of debt in December 2023, down from US$70.3m, one year before. But it also has US$98.8m in cash to offset that, meaning it has US$31.8m net cash.

How Healthy Is InnovAge Holding's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that InnovAge Holding had liabilities of US$123.1m due within 12 months and liabilities of US$108.2m due beyond that. Offsetting these obligations, it had cash of US$98.8m as well as receivables valued at US$43.7m due within 12 months. So it has liabilities totalling US$88.8m more than its cash and near-term receivables, combined.

Of course, InnovAge Holding has a market capitalization of US$637.4m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, InnovAge Holding 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 it is future earnings, more than anything, that will determine InnovAge Holding's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year InnovAge Holding wasn't profitable at an EBIT level, but managed to grow its revenue by 4.6%, to US$721m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is InnovAge Holding?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months InnovAge Holding lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$13m of cash and made a loss of US$32m. But the saving grace is the US$31.8m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. For riskier companies like InnovAge Holding I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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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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.