Yahoo Finance Does Guardant Health (NASDAQ:GH) Have A Healthy Balance Sheet?
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, Guardant Health, Inc. (NASDAQ:GH) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Guardant Health
How Much Debt Does Guardant Health Carry?
As you can see below, at the end of June 2021, Guardant Health had US$1.13b of debt, up from none a year ago. Click the image for more detail. But it also has US$1.79b in cash to offset that, meaning it has US$658.1m net cash.
A Look At Guardant Health's Liabilities
According to the last reported balance sheet, Guardant Health had liabilities of US$96.6m due within 12 months, and liabilities of US$1.35b due beyond 12 months. Offsetting this, it had US$1.79b in cash and US$53.7m in receivables that were due within 12 months. So it actually has US$400.9m more liquid assets than total liabilities.
This short term liquidity is a sign that Guardant Health could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Guardant Health has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Guardant Health 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.
In the last year Guardant Health wasn't profitable at an EBIT level, but managed to grow its revenue by 26%, to US$324m. With any luck the company will be able to grow its way to profitability.
So How Risky Is Guardant Health?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Guardant Health lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$191m and booked a US$379m accounting loss. But the saving grace is the US$658.1m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Guardant 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. 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. To that end, you should be aware of the 1 warning sign we've spotted with Guardant Health .
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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.
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