Would iRhythm Technologies (NASDAQ:IRTC) Be Better Off With Less Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 iRhythm Technologies Carry?

The image below, which you can click on for greater detail, shows that at December 2024 iRhythm Technologies had debt of US$646.4m, up from US$35.0m in one year. On the flip side, it has US$535.6m in cash leading to net debt of about US$110.9m.

How Strong Is iRhythm Technologies' Balance Sheet?

We can see from the most recent balance sheet that iRhythm Technologies had liabilities of US$110.9m falling due within a year, and liabilities of US$729.6m due beyond that. Offsetting this, it had US$535.6m in cash and US$79.9m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$225.0m.

Since publicly traded iRhythm Technologies shares are worth a total of US$3.36b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. 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 .

See our latest analysis for iRhythm Technologies

In the last year iRhythm Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 20%, to US$592m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, iRhythm Technologies still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$71m. 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$46m of cash over the last year. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - iRhythm Technologies has 1 warning sign we think you should be aware of.

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.