Ensign Group (NASDAQ:ENSG) Has A Pretty Healthy Balance Sheet

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that The Ensign Group, Inc. (NASDAQ:ENSG) does use debt in its business. But the real question is whether this debt is making the company risky.

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

What Is Ensign Group's Debt?

As you can see below, Ensign Group had US$144.7m 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$344.5m in cash, leading to a US$199.8m net cash position.

How Strong Is Ensign Group's Balance Sheet?

We can see from the most recent balance sheet that Ensign Group had liabilities of US$705.2m falling due within a year, and liabilities of US$2.12b due beyond that. Offsetting these obligations, it had cash of US$344.5m as well as receivables valued at US$584.0m due within 12 months. So its liabilities total US$1.90b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Ensign Group has a market capitalization of US$7.95b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Ensign Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Ensign Group

On top of that, Ensign Group grew its EBIT by 44% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Ensign Group can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Ensign Group 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. In the last three years, Ensign Group's free cash flow amounted to 44% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While Ensign Group does have more liabilities than liquid assets, it also has net cash of US$199.8m. And it impressed us with its EBIT growth of 44% over the last year. So we don't think Ensign Group's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Ensign Group, you may well want to click here to check an interactive graph of its earnings per share history.

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.