Does Edwards Lifesciences (NYSE:EW) Have A Healthy Balance Sheet?

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. Importantly, Edwards Lifesciences Corporation (NYSE:EW) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Edwards Lifesciences

What Is Edwards Lifesciences's Debt?

The chart below, which you can click on for greater detail, shows that Edwards Lifesciences had US$596.7m in debt in June 2023; about the same as the year before. But on the other hand it also has US$1.51b in cash, leading to a US$912.6m net cash position.

A Look At Edwards Lifesciences' Liabilities

According to the last reported balance sheet, Edwards Lifesciences had liabilities of US$1.16b due within 12 months, and liabilities of US$1.40b due beyond 12 months. Offsetting these obligations, it had cash of US$1.51b as well as receivables valued at US$816.9m due within 12 months. So its liabilities total US$231.3m more than the combination of its cash and short-term receivables.

This state of affairs indicates that Edwards Lifesciences' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$42.2b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Edwards Lifesciences boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Edwards Lifesciences saw its EBIT drop by 2.3% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Edwards Lifesciences 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Edwards Lifesciences may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Edwards Lifesciences produced sturdy free cash flow equating to 62% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Edwards Lifesciences has US$912.6m in net cash. So is Edwards Lifesciences's debt a risk? It doesn't seem so to us. We'd be motivated to research the stock further if we found out that Edwards Lifesciences insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.