Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies ICU Medical, Inc. (NASDAQ:ICUI) makes use of debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
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. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for ICU Medical
What Is ICU Medical's Debt?
As you can see below, at the end of June 2022, ICU Medical had US$1.66b of debt, up from none a year ago. Click the image for more detail. However, it does have US$285.6m in cash offsetting this, leading to net debt of about US$1.37b.
NasdaqGS:ICUI Debt to Equity History September 19th 2022
How Strong Is ICU Medical's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that ICU Medical had liabilities of US$486.0m due within 12 months and liabilities of US$2.02b due beyond that. Offsetting this, it had US$285.6m in cash and US$219.6m in receivables that were due within 12 months. So its liabilities total US$2.00b more than the combination of its cash and short-term receivables.
ICU Medical has a market capitalization of US$3.87b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk.
In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Weak interest cover of 1.9 times and a disturbingly high net debt to EBITDA ratio of 6.3 hit our confidence in ICU Medical like a one-two punch to the gut. This means we'd consider it to have a heavy debt load. Worse, ICU Medical's EBIT was down 62% over the last year. If earnings keep going like that over the long term, it has a snowball's chance in hell of paying off that debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if ICU Medical 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. So we always check how much of that EBIT is translated into free cash flow. During the last three years, ICU Medical produced sturdy free cash flow equating to 70% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.
Our View
On the face of it, ICU Medical's net debt to EBITDA left us tentative about the stock, and its EBIT growth rate was no more enticing than the one empty restaurant on the busiest night of the year. But at least it's pretty decent at converting EBIT to free cash flow; that's encouraging. We should also note that Medical Equipment industry companies like ICU Medical commonly do use debt without problems. Looking at the balance sheet and taking into account all these factors, we do believe that debt is making ICU Medical stock a bit risky. Some people like that sort of risk, but we're mindful of the potential pitfalls, so we'd probably prefer it carry less debt. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example ICU Medical has 4 warning signs (and 1 which is concerning) we think you should know about.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
傳奇基金經理理想汽車·盧曾説,最大的投資風險不是價格的波動,而是你是否會遭受永久性的資本損失。因此,當你考慮到任何一隻股票的風險有多大時,你需要考慮債務可能是顯而易見的,因為太多的債務可能會讓一家公司倒閉。與許多其他公司一樣ICU醫療公司納斯達克(Sequoia Capital:ICUI)利用債務。但真正的問題是,這筆債務是否讓該公司面臨風險。
債務會帶來什麼風險?
債務是幫助企業發展的一種工具,但如果一家企業無法償還貸款人的債務,那麼它就只能聽從貸款人的擺佈。如果情況真的變得很糟糕,貸款人可以控制業務。然而,一種更常見(但仍令人痛苦)的情景是,它不得不以低價籌集新的股本,從而永久性地稀釋股東。話雖如此,最常見的情況是一家公司對債務管理得相當好--並對自己有利。在考慮一家公司的債務水平時,第一步是同時考慮其現金和債務。
查看我們對ICU醫療的最新分析
ICU醫療公司的債務是什麼?
如下所示,截至2022年6月底,ICU Medical的債務為16.6億美元,而一年前為零。單擊圖像瞭解更多詳細信息。然而,它確實有2.856億美元的現金來抵消這一點,導致淨債務約為13.7億美元。
NasdaqGS:ICUI債轉股歷史2022年9月19日
ICU醫療公司的資產負債表有多強勁?
放大最新的資產負債表數據,我們可以看到,ICU Medical有4.86億美元的負債在12個月內到期,超過12個月的負債有20.2億美元到期。作為抵消,它有2.856億美元的現金和2.196億美元的應收賬款在12個月內到期。因此,它的負債總額比現金和短期應收賬款的總和多出20億美元。
ICU Medical的市值為38.7億美元,因此如果有需要,它很可能會籌集現金來改善其資產負債表。但我們肯定希望密切關注其債務帶來太大風險的跡象。
為了評估一家公司的債務相對於它的收益,我們計算它的淨債務除以它的利息、税項、折舊和攤銷前收益(EBITDA)和它的利息和税前收益(EBIT)除以它的利息支出(它的利息覆蓋)。因此,我們考慮債務相對於收益,包括折舊和攤銷費用。
1.9倍的疲軟利息覆蓋率和令人不安的高得令人不安的淨債務與EBITDA之比6.3打擊了我們對ICU醫療的信心,就像對腸子的一擊。這意味着我們會認為它有沉重的債務負擔。更糟糕的是,ICU Medical的息税前利潤比去年下降了62%。如果長期盈利保持這樣的水平,它在地獄裏償還債務的機會就像滾雪球一樣渺茫。當你分析債務時,資產負債表顯然是你關注的領域。但最終,該業務未來的盈利能力將決定ICU Medical能否隨着時間的推移加強其資產負債表。因此,如果你想看看專業人士的想法,你可能會發現這份關於分析師利潤預測的免費報告很有趣。
最後,企業需要自由現金流來償還債務;會計利潤只是不能削減這一點。因此,我們總是檢查EBIT中有多少轉化為自由現金流。在過去的三年中,ICU Medical產生了強勁的自由現金流,相當於其息税前利潤的70%,這與我們的預期大致相同。這種冷酷的現金意味着,它可以在想要的時候減少債務。
我們的觀點
從表面上看,ICU Medical對EBITDA的淨債務讓我們對該股持懷疑態度,其EBIT增長率並不比一年中最繁忙的夜晚的一家空餐廳更具誘惑力。但至少它在將息税前利潤轉化為自由現金流方面相當不錯;這是令人鼓舞的。我們還應該注意到,像ICU Medical這樣的醫療設備行業公司通常會利用債務而不會出現問題。看看資產負債表,並考慮到所有這些因素,我們確實認為債務讓ICU醫療股票有點風險。有些人喜歡這種風險,但我們注意到了潛在的陷阱,所以我們可能更喜歡它揹負更少的債務。當你分析債務時,資產負債表顯然是你關注的領域。然而,並非所有投資風險都存在於資產負債表中--遠非如此。例如,ICU醫療中心有4個警示標誌(還有一條是關於的)我們認為你應該知道。
歸根結底,關注那些沒有淨債務的公司往往更好。你可以訪問我們的這類公司的特別名單(都有利潤增長的記錄)。這是免費的。
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本文由Simply Wall St.撰寫,具有概括性。我們僅使用不偏不倚的方法提供基於歷史數據和分析師預測的評論,我們的文章並不打算作為財務建議。它不構成買賣任何股票的建議,也沒有考慮你的目標或你的財務狀況。我們的目標是為您帶來由基本面數據驅動的長期重點分析。請注意,我們的分析可能不會將最新的對價格敏感的公司公告或定性材料考慮在內。Simply Wall St.對上述任何一隻股票都沒有持倉。