Is iRhythm Technologies (NASDAQ:IRTC) Using Debt Sensibly?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that iRhythm Technologies, Inc. (NASDAQ:IRTC) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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

Check out our latest analysis for iRhythm Technologies

How Much Debt Does iRhythm Technologies Carry?

The image below, which you can click on for greater detail, shows that at December 2022 iRhythm Technologies had debt of US$34.9m, up from US$21.4m in one year. But it also has US$213.1m in cash to offset that, meaning it has US$178.2m net cash.

How Healthy Is iRhythm Technologies' Balance Sheet?

According to the last reported balance sheet, iRhythm Technologies had liabilities of US$89.1m due within 12 months, and liabilities of US$119.3m due beyond 12 months. On the other hand, it had cash of US$213.1m and US$49.9m worth of receivables due within a year. So it actually has US$54.7m 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$3.53b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, iRhythm Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year iRhythm Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 27%, to US$411m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is iRhythm Technologies?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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$53m and booked a US$116m accounting loss. But at least it has US$178.2m 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. 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 3 warning signs in our investment analysis , you should know about...

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.