Globus Medical (NYSE:GMED) Has A Rock Solid Balance Sheet

Warren Buffett famously said, '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. Importantly, Globus Medical, Inc. (NYSE:GMED) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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 Globus Medical

How Much Debt Does Globus Medical Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Globus Medical had US$430.5m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$492.9m in cash, so it actually has US$62.4m net cash.

How Healthy Is Globus Medical's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Globus Medical had liabilities of US$794.1m due within 12 months and liabilities of US$223.3m due beyond that. Offsetting this, it had US$492.9m in cash and US$614.3m in receivables that were due within 12 months. So it can boast US$89.8m more liquid assets than total liabilities.

Having regard to Globus Medical's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$10.1b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Globus Medical has more cash than debt is arguably a good indication that it can manage its debt safely.

In addition to that, we're happy to report that Globus Medical has boosted its EBIT by 42%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Globus Medical'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Globus Medical 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. Over the most recent three years, Globus Medical recorded free cash flow worth 55% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Globus Medical has net cash of US$62.4m, as well as more liquid assets than liabilities. And we liked the look of last year's 42% year-on-year EBIT growth. So is Globus Medical's debt a risk? It doesn't seem so to us. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Globus Medical you should know about.

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.