Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Health Catalyst, Inc. (NASDAQ:HCAT) does use debt in its business. But should shareholders be worried about its use of debt?

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. 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. 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 Health Catalyst Carry?

As you can see below, at the end of September 2024, Health Catalyst had US$345.0m of debt, up from US$227.7m a year ago. Click the image for more detail. But it also has US$387.3m in cash to offset that, meaning it has US$42.2m net cash.

How Healthy Is Health Catalyst's Balance Sheet?

According to the last reported balance sheet, Health Catalyst had liabilities of US$323.8m due within 12 months, and liabilities of US$134.2m due beyond 12 months. On the other hand, it had cash of US$387.3m and US$53.0m worth of receivables due within a year. So it has liabilities totalling US$17.7m more than its cash and near-term receivables, combined.

Given Health Catalyst has a market capitalization of US$458.8m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Health Catalyst also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Health Catalyst'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 Health Catalyst wasn't profitable at an EBIT level, but managed to grow its revenue by 4.2%, to US$302m. 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?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Health Catalyst 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$16m and booked a US$79m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$42.2m. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Health Catalyst that you should be aware of before investing here.

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.