ResMed (NYSE:RMD) Seems To Use Debt Rather Sparingly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that ResMed Inc. (NYSE:RMD) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does ResMed Carry?

As you can see below, ResMed had US$673.0m of debt at March 2025, down from US$1.01b a year prior. But on the other hand it also has US$944.8m in cash, leading to a US$271.8m net cash position.

A Look At ResMed's Liabilities

The latest balance sheet data shows that ResMed had liabilities of US$940.5m due within a year, and liabilities of US$1.08b falling due after that. On the other hand, it had cash of US$944.8m and US$991.1m worth of receivables due within a year. So its liabilities total US$84.7m more than the combination of its cash and short-term receivables.

Having regard to ResMed's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$36.9b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, ResMed boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for ResMed

Another good sign is that ResMed has been able to increase its EBIT by 25% in twelve months, making it easier to pay down debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ResMed'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. ResMed 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, ResMed produced sturdy free cash flow equating to 76% 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 ResMed has US$271.8m in net cash. The cherry on top was that in converted 76% of that EBIT to free cash flow, bringing in US$1.6b. So we don't think ResMed's use of debt is risky. We'd be very excited to see if ResMed insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.

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.