We Think ResMed (NYSE:RMD) Can Manage Its Debt With Ease

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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, ResMed Inc. (NYSE:RMD) does carry debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is ResMed's Debt?

The image below, which you can click on for greater detail, shows that ResMed had debt of US$668.3m at the end of June 2025, a reduction from US$707.2m over a year. However, its balance sheet shows it holds US$1.21b in cash, so it actually has US$541.2m net cash.

How Healthy Is ResMed's Balance Sheet?

We can see from the most recent balance sheet that ResMed had liabilities of US$1.02b falling due within a year, and liabilities of US$1.19b due beyond that. Offsetting these obligations, it had cash of US$1.21b as well as receivables valued at US$990.7m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

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$40.0b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, ResMed also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for ResMed

Another good sign is that ResMed has been able to increase its EBIT by 22% in twelve months, making it easier to pay down debt. 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 ResMed'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. 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. Over the last three years, ResMed recorded free cash flow worth a fulsome 83% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

We could understand if investors are concerned about ResMed's liabilities, but we can be reassured by the fact it has has net cash of US$541.2m. And it impressed us with free cash flow of US$1.7b, being 83% of its EBIT. So is ResMed's debt a risk? It doesn't seem so to us. 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.

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.