Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, agilon health, inc. (NYSE:AGL) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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.

What Is agilon health's Net Debt?

As you can see below, agilon health had US$37.3m of debt at March 2024, down from US$42.2m a year prior. However, its balance sheet shows it holds US$419.1m in cash, so it actually has US$381.7m 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$1.53b falling due within a year, and liabilities of US$101.3m due beyond that. On the other hand, it had cash of US$419.1m and US$1.57b worth of receivables due within a year. So it can boast US$362.2m more liquid assets than total liabilities.

This short term liquidity is a sign that agilon health could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, agilon health 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 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 74%, to US$4.9b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is agilon health?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that agilon health had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$185m and booked a US$202m accounting loss. However, it has net cash of US$381.7m, so it has a bit of time before it will need more capital. agilon health's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for agilon health you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com