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. Importantly, Health Catalyst, Inc. (NASDAQ:HCAT) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Health Catalyst Carry?

As you can see below, Health Catalyst had US$228.0m of debt, at December 2023, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$317.7m in cash, so it actually has US$89.7m net cash.

A Look At Health Catalyst's Liabilities

Zooming in on the latest balance sheet data, we can see that Health Catalyst had liabilities of US$89.0m due within 12 months and liabilities of US$245.9m due beyond that. On the other hand, it had cash of US$317.7m and US$61.2m worth of receivables due within a year. So it actually has US$44.0m more liquid assets than total liabilities.

This surplus suggests that Health Catalyst has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Health Catalyst has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Health Catalyst 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.

Over 12 months, Health Catalyst reported revenue of US$296m, which is a gain of 7.1%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Health Catalyst?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Health Catalyst had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$47m of cash and made a loss of US$118m. While this does make the company a bit risky, it's important to remember it has net cash of US$89.7m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Health Catalyst has 2 warning signs we think you should be aware of.

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.