Health Check: How Prudently Does iRhythm Technologies (NASDAQ:IRTC) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 iRhythm Technologies, Inc. (NASDAQ:IRTC) does use debt in its business. But should shareholders be worried about its use of debt?

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. 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.

View our latest analysis for iRhythm Technologies

How Much Debt Does iRhythm Technologies Carry?

The chart below, which you can click on for greater detail, shows that iRhythm Technologies had US$34.9m in debt in June 2023; about the same as the year before. However, it does have US$164.7m in cash offsetting this, leading to net cash of US$129.8m.

How Healthy Is iRhythm Technologies' Balance Sheet?

The latest balance sheet data shows that iRhythm Technologies had liabilities of US$89.4m due within a year, and liabilities of US$116.2m falling due after that. Offsetting these obligations, it had cash of US$164.7m as well as receivables valued at US$51.1m due within 12 months. So it can boast US$10.2m more liquid assets than total liabilities.

This state of affairs indicates that iRhythm Technologies' 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 US$2.86b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that iRhythm Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine iRhythm Technologies'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.

In the last year iRhythm Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 25%, to US$452m. With any luck the company will be able to grow its way to profitability.

So How Risky Is iRhythm Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months iRhythm Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$50m of cash and made a loss of US$99m. But at least it has US$129.8m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, iRhythm Technologies may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for iRhythm Technologies 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.