These 4 Measures Indicate That Fisher & Paykel Healthcare (NZSE:FPH) Is Using Debt Safely

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that Fisher & Paykel Healthcare Corporation Limited (NZSE:FPH) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

What Is Fisher & Paykel Healthcare's Debt?

You can click the graphic below for the historical numbers, but it shows that Fisher & Paykel Healthcare had NZ$64.0m of debt in March 2025, down from NZ$114.2m, one year before. But it also has NZ$264.5m in cash to offset that, meaning it has NZ$200.5m net cash.

How Strong Is Fisher & Paykel Healthcare's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Fisher & Paykel Healthcare had liabilities of NZ$500.4m due within 12 months and liabilities of NZ$160.0m due beyond that. Offsetting these obligations, it had cash of NZ$264.5m as well as receivables valued at NZ$318.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by NZ$77.8m.

This state of affairs indicates that Fisher & Paykel Healthcare's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the NZ$21.6b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Fisher & Paykel Healthcare boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Fisher & Paykel Healthcare

In addition to that, we're happy to report that Fisher & Paykel Healthcare has boosted its EBIT by 44%, thus reducing the spectre of future debt repayments. 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 Fisher & Paykel Healthcare's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Fisher & Paykel Healthcare may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, Fisher & Paykel Healthcare recorded free cash flow of 47% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

We could understand if investors are concerned about Fisher & Paykel Healthcare's liabilities, but we can be reassured by the fact it has has net cash of NZ$200.5m. And we liked the look of last year's 44% year-on-year EBIT growth. So is Fisher & Paykel Healthcare's debt a risk? It doesn't seem so to us. We'd be very excited to see if Fisher & Paykel Healthcare insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.

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.

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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.