AMN Healthcare Services (NYSE: AMN) has a rock solid balance sheet


Warren Buffett said: “Volatility is far from synonymous with risk”. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. We note that AMN Health Services, Inc. (NYSE: AMN) has debt on its balance sheet. But should shareholders be concerned about its use of debt?

When is debt dangerous?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.

What is the net debt of AMN Healthcare Services?

As you can see below, AMN Healthcare Services had a debt of US $ 841.7 million in June 2021, up from US $ 963.9 million the year before. However, he also had $ 139.5 million in cash, so his net debt is $ 702.2 million.

NYSE: AMN Debt to Equity History October 29, 2021

How healthy is AMN Healthcare Services’ balance sheet?

We can see from the most recent balance sheet that AMN Healthcare Services had liabilities of US $ 582.6 million due within one year and liabilities of US $ 1.08 billion due within one year. -of the. In compensation for these obligations, he had cash of US $ 139.5 million as well as receivables valued at US $ 600.5 million due within 12 months. It therefore has a liability totaling US $ 926.1 million more than its cash and short-term receivables combined.

Given that AMN Healthcare Services has a market capitalization of US $ 4.69 billion, it is hard to believe that these liabilities pose a significant threat. But there are enough liabilities that we would certainly recommend that shareholders continue to monitor the balance sheet going forward.

In order to measure a company’s debt relative to its profits, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its profit before interest and taxes (EBIT) divided by its interest. debtors (its interest coverage). In this way, we consider both the absolute amount of debt, as well as the interest rates paid on it.

AMN Healthcare Services has net debt of 1.8 times EBITDA, which is not too much, but its interest coverage seems a bit weak, with EBIT at only 5.9 times interest expense. While we’re not worried about these numbers, it’s worth noting that the company’s cost of debt does have a real impact. Importantly, AMN Healthcare Services has increased its EBIT by 52% over the past twelve months, and this growth will make it easier to process its debt. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether AMN Healthcare Services can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Finally, a business needs free cash flow to repay its debts; accounting profits are not enough. We therefore always check how much of this EBIT is converted into free cash flow. Over the past three years, AMN Healthcare Services has actually generated more free cash flow than EBIT. This kind of solid money conversion makes us as excited as the crowd when the beat drops at a Daft Punk concert.

Our point of view

Fortunately, AMN Healthcare Services’ impressive conversion of EBIT to free cash flow means that it has the upper hand over its debt. And that’s just the start of good news as its EBIT growth rate is also very encouraging. It should also be noted that AMN Healthcare Services belongs to the healthcare industry, which is often seen as quite defensive. Looking at the big picture, we think AMN Healthcare Services’ use of debt looks very reasonable and we don’t care. While debt comes with risk, when used wisely, it can also generate a higher return on equity. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 2 warning signs for AMN Healthcare Services you should know.

At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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