We Think Establishment Labs Holdings (NASDAQ:ESTA) Has A Fair Chunk Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Establishment Labs Holdings Inc. (NASDAQ:ESTA) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 Establishment Labs Holdings Carry?

As you can see below, at the end of March 2025, Establishment Labs Holdings had US$220.3m of debt, up from US$192.2m a year ago. Click the image for more detail. However, because it has a cash reserve of US$69.2m, its net debt is less, at about US$151.2m.

A Look At Establishment Labs Holdings' Liabilities

We can see from the most recent balance sheet that Establishment Labs Holdings had liabilities of US$69.0m falling due within a year, and liabilities of US$225.8m due beyond that. On the other hand, it had cash of US$69.2m and US$63.2m worth of receivables due within a year. So it has liabilities totalling US$162.4m more than its cash and near-term receivables, combined.

Given Establishment Labs Holdings has a market capitalization of US$1.20b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, 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 Establishment Labs Holdings'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.

Check out our latest analysis for Establishment Labs Holdings

In the last year Establishment Labs Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 9.3%, to US$170m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Establishment Labs Holdings produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$58m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$78m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Establishment Labs Holdings you should know about.

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.