Is iRhythm Technologies (NASDAQ:IRTC) Using Debt In A Risky Way?

Warren Buffett famously said, '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 should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See 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 March 2023; about the same as the year before. But on the other hand it also has US$176.3m in cash, leading to a US$141.4m net cash position.

A Look At iRhythm Technologies' Liabilities

The latest balance sheet data shows that iRhythm Technologies had liabilities of US$81.9m due within a year, and liabilities of US$118.0m falling due after that. Offsetting these obligations, it had cash of US$176.3m as well as receivables valued at US$49.6m due within 12 months. So it actually has US$26.0m more liquid assets than total liabilities.

Having regard to iRhythm Technologies' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$3.12b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, iRhythm Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! 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 26%, to US$430m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is iRhythm Technologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months iRhythm Technologies lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$48m and booked a US$105m accounting loss. However, it has net cash of US$141.4m, so it has a bit of time before it will need more capital. 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. 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. Be aware that iRhythm Technologies is showing 2 warning signs in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.