Here's Why U.S. Physical Therapy (NYSE:USPH) Can Manage Its Debt Responsibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that U.S. Physical Therapy, Inc. (NYSE:USPH) does use debt in its business. But the real question is whether this debt is making the company risky.

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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 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is U.S. Physical Therapy's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 U.S. Physical Therapy had US$166.5m of debt, an increase on US$146.0m, over one year. On the flip side, it has US$40.7m in cash leading to net debt of about US$125.8m.

How Strong Is U.S. Physical Therapy's Balance Sheet?

We can see from the most recent balance sheet that U.S. Physical Therapy had liabilities of US$123.8m falling due within a year, and liabilities of US$296.9m due beyond that. On the other hand, it had cash of US$40.7m and US$90.9m worth of receivables due within a year. So its liabilities total US$289.1m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since U.S. Physical Therapy has a market capitalization of US$1.17b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt.

View our latest analysis for U.S. Physical Therapy

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

U.S. Physical Therapy has a low net debt to EBITDA ratio of only 1.4. And its EBIT easily covers its interest expense, being 12.0 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Fortunately, U.S. Physical Therapy grew its EBIT by 5.1% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine U.S. Physical Therapy'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. So it's worth checking how much of that EBIT is backed by free cash flow. Over the last three years, U.S. Physical Therapy recorded free cash flow worth a fulsome 84% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Our View

U.S. Physical Therapy's conversion of EBIT to free cash flow suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And the good news does not stop there, as its interest cover also supports that impression! We would also note that Healthcare industry companies like U.S. Physical Therapy commonly do use debt without problems. Zooming out, U.S. Physical Therapy seems to use debt quite reasonably; and that gets the nod from us. After all, sensible leverage can boost returns on equity. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - U.S. Physical Therapy has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.