Outset Medical (NASDAQ:OM) 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 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 Outset Medical, Inc. (NASDAQ:OM) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Outset Medical Carry?

The image below, which you can click on for greater detail, shows that Outset Medical had debt of US$94.8m at the end of June 2025, a reduction from US$197.0m over a year. However, its balance sheet shows it holds US$184.1m in cash, so it actually has US$89.3m net cash.

How Healthy Is Outset Medical's Balance Sheet?

The latest balance sheet data shows that Outset Medical had liabilities of US$36.9m due within a year, and liabilities of US$97.1m falling due after that. On the other hand, it had cash of US$184.1m and US$34.9m worth of receivables due within a year. So it can boast US$85.0m more liquid assets than total liabilities.

This luscious liquidity implies that Outset Medical's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Outset Medical has more cash than debt is arguably a good indication that 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 Outset Medical 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.

Check out our latest analysis for Outset Medical

Over 12 months, Outset Medical reported revenue of US$119m, which is a gain of 2.5%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Outset Medical?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Outset Medical 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$68m and booked a US$98m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$89.3m. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Outset Medical (1 is a bit concerning) 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.