Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Alignment Healthcare, Inc. (NASDAQ:ALHC) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Alignment Healthcare's Debt?

As you can see below, Alignment Healthcare had US$162.0m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$301.7m in cash offsetting this, leading to net cash of US$139.7m.

How Healthy Is Alignment Healthcare's Balance Sheet?

We can see from the most recent balance sheet that Alignment Healthcare had liabilities of US$330.7m falling due within a year, and liabilities of US$170.5m due beyond that. Offsetting these obligations, it had cash of US$301.7m as well as receivables valued at US$165.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$34.4m.

Since publicly traded Alignment Healthcare shares are worth a total of US$1.60b, 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. While it does have liabilities worth noting, Alignment Healthcare also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Alignment Healthcare'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.

Over 12 months, Alignment Healthcare reported revenue of US$2.0b, which is a gain of 32%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Alignment Healthcare?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Alignment Healthcare had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$190m of cash and made a loss of US$157m. However, it has net cash of US$139.7m, so it has a bit of time before it will need more capital. Alignment Healthcare's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great 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. Case in point: We've spotted 3 warning signs for Alignment Healthcare 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.