Howard Marks said it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about…and that every practical investor that I know is worried”. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. Above all, TransMedics Group, Inc. (NASDAQ:TMDX) is in debt. But does this debt worry shareholders?
What risk does debt carry?
Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. If things go really bad, lenders can take over the business. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. When we look at debt levels, we first consider cash and debt levels, together.
See our latest analysis for TransMedics Group
How much debt does the TransMedics group carry?
As you can see below, TransMedics Group had $35.3 million in debt as of March 2022, about the same as the previous year. You can click on the graph for more details. But he also has $72.0 million in cash to offset that, which means he has $36.7 million in net cash.
How healthy is the balance sheet of the TransMedics group?
We can see from the most recent balance sheet that TransMedics Group had liabilities of US$20.3 million falling due within one year, and liabilities of US$43.8 million due beyond. In return, he had $72.0 million in cash and $11.7 million in receivables due within 12 months. So he actually has 19.6 million US dollars After liquid assets than total liabilities.
This short-term liquidity is a sign that TransMedics Group could probably service its debt easily, as its balance sheet is far from stretched. In short, TransMedics Group has clean cash, so it’s fair to say that it doesn’t have a lot of debt! There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether TransMedics Group can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
Year-over-year, TransMedics Group reported revenue of $39 million, a 55% gain, although it reported no earnings before interest and taxes. With a little luck, the company will be able to progress towards profitability.
So how risky is TransMedics Group?
Statistically speaking, businesses that lose money are riskier than those that make money. And the fact is that over the past twelve months, TransMedics Group has been losing money in earnings before interest and taxes (EBIT). And during the same period, it recorded a negative free cash outflow of US$45 million and recorded a book loss of US$47 million. However, he has a net cash position of US$36.7 million, so he has some time left before he needs more capital. With very solid revenue growth over the past year, the TransMedics Group could be on the road to profitability. Nonprofits are often risky, but they can also offer great rewards. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. We have identified 2 warning signs with TransMedics Group, and understanding them should be part of your investment process.
If you are interested in investing in businesses that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.