Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that agilon health, inc. (NYSE:AGL) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does agilon health Carry?

As you can see below, agilon health had US$34.9m of debt at September 2024, down from US$39.8m a year prior. However, its balance sheet shows it holds US$392.9m in cash, so it actually has US$358.0m net cash.

How Strong Is agilon health's Balance Sheet?

We can see from the most recent balance sheet that agilon health had liabilities of US$1.41b falling due within a year, and liabilities of US$107.4m due beyond that. Offsetting these obligations, it had cash of US$392.9m as well as receivables valued at US$1.37b due within 12 months. So it actually has US$244.7m more liquid assets than total liabilities.

This surplus strongly suggests that agilon health has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that agilon health has more cash than debt is arguably a good indication that it can manage its debt safely. 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 agilon health's ability to maintain a healthy balance sheet going forward. 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 agilon health wasn't profitable at an EBIT level, but managed to grow its revenue by 54%, to US$5.6b. With any luck the company will be able to grow its way to profitability.

So How Risky Is agilon health?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year agilon health had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$180m and booked a US$311m accounting loss. But at least it has US$358.0m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, agilon health may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example agilon health has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.