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.' 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. As with many other companies GeneDx Holdings Corp. (NASDAQ:WGS) makes use of debt. But the more important question is: how much risk is that debt creating?

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. 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 step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for GeneDx Holdings

How Much Debt Does GeneDx Holdings Carry?

As you can see below, GeneDx Holdings had US$51.9m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$141.2m in cash, leading to a US$89.3m net cash position.

A Look At GeneDx Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that GeneDx Holdings had liabilities of US$54.8m due within 12 months and liabilities of US$119.3m due beyond that. Offsetting this, it had US$141.2m in cash and US$37.6m in receivables that were due within 12 months. So it actually has US$4.68m more liquid assets than total liabilities.

Having regard to GeneDx Holdings' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$2.76b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that GeneDx Holdings 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 GeneDx Holdings 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.

In the last year GeneDx Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 51%, to US$305m. With any luck the company will be able to grow its way to profitability.

So How Risky Is GeneDx Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that GeneDx Holdings 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$34m and booked a US$52m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$89.3m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, GeneDx Holdings may be on a path to profitability. 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. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for GeneDx Holdings you should know about.

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.

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.