We Think DexCom (NASDAQ:DXCM) Can Manage Its Debt With Ease

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 DexCom, Inc. (NASDAQ:DXCM) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does DexCom Carry?

As you can see below, DexCom had US$2.44b of debt, at March 2025, 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$2.70b in cash, leading to a US$258.1m net cash position.

How Strong Is DexCom's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that DexCom had liabilities of US$3.04b due within 12 months and liabilities of US$1.45b due beyond that. Offsetting this, it had US$2.70b in cash and US$1.17b in receivables that were due within 12 months. So it has liabilities totalling US$613.8m more than its cash and near-term receivables, combined.

Having regard to DexCom's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$32.9b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, DexCom also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for DexCom

On the other hand, DexCom saw its EBIT drop by 2.9% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. 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 DexCom'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. DexCom 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. Over the last three years, DexCom recorded free cash flow worth a fulsome 94% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

We could understand if investors are concerned about DexCom's liabilities, but we can be reassured by the fact it has has net cash of US$258.1m. And it impressed us with free cash flow of US$575m, being 94% of its EBIT. So we don't think DexCom's use of debt is risky. We'd be very excited to see if DexCom 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.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.