Analyzing Debt Risk of UnitedHealth Group Incorporated for Investors
TL/DR –
The article analyses the use of debt in the business model of UnitedHealth Group Incorporated. As of March 2025, UnitedHealth Group had US$81.3b of debt, up from US$73.6b a year ago, with a net debt of about US$47.0b after considering its cash reserve of US$34.3b. However, the company’s ability to convert EBIT to free cash flow and its interest cover of 8.2 times are seen as positive signs suggesting it can handle its debt fairly comfortably.
Exploring UnitedHealth Group’s Debt as a Risk Factor
The concept of risk as an investor has been traditionally linked to volatility, but Warren Buffett famously disagreed. He stated that volatility and risk are far from synonymous. Buffett stressed that debt should be considered when evaluating the risk of any given stock, as excessive debt can drag a company down. In the healthcare sector, a good example to consider is UnitedHealth Group Inc. (NYSE:UNH). The company does employ debt in its business, but does this pose risk to shareholders?
The Role of Debt in Business
Debt aids businesses until repayment issues arise. If a company struggles to pay off its debt, lenders can assume control. More often, however, businesses must generate new equity capital at low rates, leading to permanent shareholder dilution. Conversely, replacing dilution with debt can be beneficial for businesses seeking to invest in growth. When evaluating a company’s debt usage, it’s crucial to examine their cash and debt in tandem.
UnitedHealth Group’s Debt
At the close of March 2025, UnitedHealth Group carried US$81.3b in debt, up from US$73.6b from the previous year. However, their cash reserve of US$34.3b reduces the net debt to roughly US$47.0b. They also had liabilities worth US$113.5b due within a year and US$91.2b due later. Against these liabilities, they also possessed US$34.3b in cash and US$53.0b in receivables due within a year, leaving a deficit of US$117.4b.
UnitedHealth’s Ability to Pay off Debt
UnitedHealth Group’s market capitalization is a whopping US$273.9b, meaning it could feasibly raise cash to manage its balance sheet. It’s still important, however, to scrutinize its debt repayment capacity. One method is by measuring net debt relative to earnings before interest, tax, depreciation, and amortization (EBITDA). This approach considers both the total debt and the interest rates on it.
UnitedHealth’s Debt in Perspective
UnitedHealth Group’s net debt is 1.3 times its EBITDA, indicating conservative gearing. Their interest cover rests at a comfortable 8.2 times. Their EBIT has grown by 3.9% over the past year, which should alleviate debt repayment concerns. However, it is worth noting that businesses in the healthcare industry, like UnitedHealth Group, commonly use debt without encountering problems.
Several factors suggest that UnitedHealth Group can handle its debt comfortably. While leverage can boost returns on equity, it does carry risks. Therefore, it’s crucial to keep an eye on this company’s debt levels. Here’s a warning sign for UnitedHealth Group you should be aware of before investing.
Ultimately, companies can only repay debt with cash, not accounting profits, so it’s important to verify how much EBIT is backed by free cash flow. Over the past three years, UnitedHealth Group recorded free cash flow worth 73% of its EBIT, which is around normal. This indicates that the company has the capacity to reduce its debt when necessary.
Interested in more companies like UnitedHealth Group? Check out this list of growth stocks with zero net debt today.
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