iRhythm Technologies (NASDAQ:IRTC) Has Debt But No Earnings; Should You Worry?

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 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. Importantly, iRhythm Technologies, Inc. (NASDAQ:IRTC) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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

What Is iRhythm Technologies's Debt?

The chart below, which you can click on for greater detail, shows that iRhythm Technologies had US$34.9m in debt in September 2023; about the same as the year before. However, it does have US$158.5m in cash offsetting this, leading to net cash of US$123.5m.

A Look At iRhythm Technologies' Liabilities

Zooming in on the latest balance sheet data, we can see that iRhythm Technologies had liabilities of US$102.3m due within 12 months and liabilities of US$117.7m due beyond that. Offsetting this, it had US$158.5m in cash and US$50.1m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$11.4m.

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$3.79b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, iRhythm Technologies also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if iRhythm Technologies can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, iRhythm Technologies reported revenue of US$473m, which is a gain of 24%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is iRhythm Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year iRhythm Technologies had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$56m and booked a US$105m accounting loss. But the saving grace is the US$123.5m on the balance sheet. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, iRhythm Technologies may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for iRhythm Technologies that you should be aware of.

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.