LivaNova (NASDAQ:LIVN) Has A Pretty Healthy Balance Sheet

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. We note that LivaNova PLC (NASDAQ:LIVN) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is LivaNova's Net Debt?

As you can see below, LivaNova had US$628.8m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$738.4m in cash, leading to a US$109.6m net cash position.

A Look At LivaNova's Liabilities

We can see from the most recent balance sheet that LivaNova had liabilities of US$741.6m falling due within a year, and liabilities of US$782.9m due beyond that. On the other hand, it had cash of US$738.4m and US$202.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$583.9m.

LivaNova has a market capitalization of US$2.24b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, LivaNova also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for LivaNova

Importantly, LivaNova grew its EBIT by 82% over the last twelve months, and that growth will make it easier to handle its 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 LivaNova'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. LivaNova 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, LivaNova produced sturdy free cash flow equating to 65% 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 LivaNova does have more liabilities than liquid assets, it also has net cash of US$109.6m. And it impressed us with its EBIT growth of 82% over the last year. So we don't think LivaNova's use of debt is risky. While LivaNova didn't make a statutory profit in the last year, its positive EBIT suggests that profitability might not be far away. Click here to see if its earnings are heading in the right direction, over the medium term.

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.