Apollo Medical Holdings (NASDAQ: AMEH) has a rock solid balance sheet

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Warren Buffett said: “Volatility is far from synonymous with risk”. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. We can see that Apollo Medical Holdings, Inc. (NASDAQ: AMEH) uses debt in his business. But does this debt worry shareholders?

What risk does debt entail?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company can’t meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, many companies use debt to finance their growth without negative consequences. The first step in examining a company’s debt levels is to consider its cash flow and debt together.

See our latest analysis for Apollo Medical Holdings

What is the debt of Apollo Medical Holdings?

As you can see below, Apollo Medical Holdings was in debt of US $ 239.0 million, as of March 2021, which is roughly the same as the year before. You can click on the graph for more details. However, his balance sheet shows that he holds $ 272.8 million in cash, so he actually has $ 33.8 million in net cash.

NasdaqCM: AMEH History of debt to equity July 16, 2021

How healthy is Apollo Medical Holdings’ balance sheet?

According to the latest published balance sheet, Apollo Medical Holdings had liabilities of US $ 126.3 million due within 12 months and liabilities of US $ 252.4 million due beyond 12 months. In return, he had $ 272.8 million in cash and $ 87.8 million in receivables due within 12 months. It therefore has a liability totaling US $ 18.1 million more than its combined cash and short-term receivables.

Considering the size of Apollo Medical Holdings, it appears that its liquid assets are well balanced with its total liabilities. So while it’s hard to imagine the US $ 3.32 billion company struggling to find the money, we still think it’s worth watching its balance sheet. Despite its notable liabilities, Apollo Medical Holdings has a net cash flow, so it’s fair to say it doesn’t have a lot of debt!

Best of all, Apollo Medical Holdings increased its EBIT by 133% last year, which is an impressive improvement. This boost will make it even easier to pay down debt in the future. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Apollo Medical Holdings can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Finally, while the IRS may love accounting profits, lenders only accept hard cash. Apollo Medical Holdings may have net cash on the balance sheet, but it’s always interesting to consider the extent to which the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its ability to manage debt. Over the past three years, Apollo Medical Holdings has recorded free cash flow of 42% of its EBIT, which is lower than expected. This low cash conversion makes debt management more difficult.

In summary

We could understand if investors are concerned about the liabilities of Apollo Medical Holdings, but we can take comfort in the fact that it has net cash of $ 33.8 million. And it impressed us with its EBIT growth of 133% over last year. So is Apollo Medical Holdings’ debt a risk? It does not seem to us. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. For example – Apollo Medical Holdings has 5 warning signs we think you should be aware.

If you are interested in investing in companies that can generate profits without the burden of debt, check out this page. free list of growing companies that have net cash on the balance sheet.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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