These 4 Measures Indicate That Viemed Healthcare (NASDAQ:VMD) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Viemed Healthcare, Inc. (NASDAQ:VMD) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Viemed Healthcare

How Much Debt Does Viemed Healthcare Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Viemed Healthcare had US$9.93m of debt, an increase on US$4.32m, over one year. But on the other hand it also has US$10.1m in cash, leading to a US$149.0k net cash position.

A Look At Viemed Healthcare's Liabilities

The latest balance sheet data shows that Viemed Healthcare had liabilities of US$31.6m due within a year, and liabilities of US$9.03m falling due after that. Offsetting these obligations, it had cash of US$10.1m as well as receivables valued at US$17.9m due within 12 months. So it has liabilities totalling US$12.6m more than its cash and near-term receivables, combined.

Since publicly traded Viemed Healthcare shares are worth a total of US$353.8m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Viemed Healthcare boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Viemed Healthcare grew its EBIT by 61% over the last twelve months, and that growth will make it easier to handle its debt. 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 Viemed Healthcare's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Viemed Healthcare has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Viemed Healthcare produced sturdy free cash flow equating to 66% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Viemed Healthcare has US$149.0k in net cash. And we liked the look of last year's 61% year-on-year EBIT growth. So we don't think Viemed Healthcare's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Viemed Healthcare, you may well want to click here to check an interactive graph of its earnings per share history.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.