Is Lincoln Educational Services (NASDAQ:LINC) A Risky Investment?

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. We can see that Lincoln Educational Services Corporation (NASDAQ:LINC) does use debt in its business. But should shareholders be worried about its use of debt?

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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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Lincoln Educational Services's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Lincoln Educational Services had US$13.0m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$16.7m in cash, so it actually has US$3.70m net cash.

How Healthy Is Lincoln Educational Services' Balance Sheet?

We can see from the most recent balance sheet that Lincoln Educational Services had liabilities of US$88.3m falling due within a year, and liabilities of US$178.4m due beyond that. Offsetting these obligations, it had cash of US$16.7m as well as receivables valued at US$47.3m due within 12 months. So its liabilities total US$202.7m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Lincoln Educational Services has a market capitalization of US$662.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Lincoln Educational Services boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Lincoln Educational Services

Even more impressive was the fact that Lincoln Educational Services grew its EBIT by 103% over twelve months. That boost will make it even easier to pay down debt going forward. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Lincoln Educational Services'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Lincoln Educational Services 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 three years, Lincoln Educational Services saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While Lincoln Educational Services does have more liabilities than liquid assets, it also has net cash of US$3.70m. And it impressed us with its EBIT growth of 103% over the last year. So we are not troubled with Lincoln Educational Services's debt use. 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. For example, we've discovered 1 warning sign for Lincoln Educational Services that you should be aware of before investing here.

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.

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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.