Is Ensign Group (NASDAQ:ENSG) Using Too Much Debt?
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. We note that The Ensign Group, Inc. (NASDAQ:ENSG) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
How Much Debt Does Ensign Group Carry?
As you can see below, Ensign Group had US$142.7m of debt, at September 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$506.3m in cash, leading to a US$363.6m net cash position.
How Strong Is Ensign Group's Balance Sheet?
We can see from the most recent balance sheet that Ensign Group had liabilities of US$825.2m falling due within a year, and liabilities of US$2.28b due beyond that. On the other hand, it had cash of US$506.3m and US$612.7m worth of receivables due within a year. So its liabilities total US$1.98b more than the combination of its cash and short-term receivables.
Given Ensign Group has a humongous market capitalization of US$10.0b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Ensign Group also has more cash than debt, so we're pretty confident it can manage its debt safely.
See our latest analysis for Ensign Group
In addition to that, we're happy to report that Ensign Group has boosted its EBIT by 44%, thus reducing the spectre of future debt repayments. 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 Ensign Group 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Ensign Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Ensign Group produced sturdy free cash flow equating to 71% 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
Although Ensign Group's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$363.6m. And we liked the look of last year's 44% year-on-year EBIT growth. So we don't think Ensign Group's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Ensign Group's earnings per share history for free.
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.