Allscripts Healthcare Solutions (NASDAQ:MDRX) Has A Pretty Healthy Balance Sheet
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.' 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. Importantly, Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX) does carry debt. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Allscripts Healthcare Solutions
What Is Allscripts Healthcare Solutions's Net Debt?
The image below, which you can click on for greater detail, shows that Allscripts Healthcare Solutions had debt of US$199.9m at the end of June 2022, a reduction from US$421.3m over a year. But it also has US$500.2m in cash to offset that, meaning it has US$300.3m net cash.
A Look At Allscripts Healthcare Solutions' Liabilities
We can see from the most recent balance sheet that Allscripts Healthcare Solutions had liabilities of US$256.3m falling due within a year, and liabilities of US$261.6m due beyond that. Offsetting these obligations, it had cash of US$500.2m as well as receivables valued at US$215.8m due within 12 months. So it actually has US$198.1m more liquid assets than total liabilities.
This short term liquidity is a sign that Allscripts Healthcare Solutions could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Allscripts Healthcare Solutions has more cash than debt is arguably a good indication that it can manage its debt safely.
Better yet, Allscripts Healthcare Solutions grew its EBIT by 243% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. 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 Allscripts Healthcare Solutions 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.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Allscripts Healthcare Solutions has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last two years, Allscripts Healthcare Solutions saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.
Summing Up
While it is always sensible to investigate a company's debt, in this case Allscripts Healthcare Solutions has US$300.3m in net cash and a decent-looking balance sheet. And we liked the look of last year's 243% year-on-year EBIT growth. So is Allscripts Healthcare Solutions's debt a risk? It doesn't seem so to us. 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. Case in point: We've spotted 2 warning signs for Allscripts Healthcare Solutions you should be aware of.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
