David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that The Beauty Health Company (NASDAQ:SKIN) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Beauty Health Carry?

As you can see below, Beauty Health had US$363.4m of debt at September 2025, down from US$551.4m a year prior. However, because it has a cash reserve of US$217.4m, its net debt is less, at about US$146.0m.

How Strong Is Beauty Health's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Beauty Health had liabilities of US$61.9m due within 12 months and liabilities of US$376.1m due beyond that. Offsetting these obligations, it had cash of US$217.4m as well as receivables valued at US$25.4m due within 12 months. So it has liabilities totalling US$195.2m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of US$184.9m, we think shareholders really should watch Beauty Health's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Beauty Health can strengthen its balance sheet over time.

Over 12 months, Beauty Health made a loss at the EBIT level, and saw its revenue drop to US$302m, which is a fall of 13%. That's not what we would hope to see.

Caveat Emptor

While Beauty Health's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping US$28m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of US$12m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot.

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.

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.