The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, GeneDx Holdings Corp. (NASDAQ:WGS) does carry debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is GeneDx Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 GeneDx Holdings had US$52.2m of debt, an increase on US$6.25m, over one year. However, it does have US$106.9m in cash offsetting this, leading to net cash of US$54.7m.

A Look At GeneDx Holdings' Liabilities

The latest balance sheet data shows that GeneDx Holdings had liabilities of US$68.3m due within a year, and liabilities of US$126.8m falling due after that. On the other hand, it had cash of US$106.9m and US$26.2m worth of receivables due within a year. So it has liabilities totalling US$62.0m more than its cash and near-term receivables, combined.

Since publicly traded GeneDx Holdings shares are worth a total of US$931.2m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, GeneDx Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! 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 GeneDx Holdings 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 GeneDx Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 3.1%, to US$244m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is GeneDx Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that GeneDx Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$96m of cash and made a loss of US$117m. But at least it has US$54.7m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that GeneDx Holdings is showing 4 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

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.