Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, Tandem Diabetes Care, Inc. (NASDAQ:TNDM) does carry debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company 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 and debt together.
What Is Tandem Diabetes Care's Debt?
You can click the graphic below for the historical numbers, but it shows that as of March 2024 Tandem Diabetes Care had US$347.5m of debt, an increase on US$283.7m, over one year. However, its balance sheet shows it holds US$467.8m in cash, so it actually has US$120.3m net cash.
A Look At Tandem Diabetes Care's Liabilities
The latest balance sheet data shows that Tandem Diabetes Care had liabilities of US$193.0m due within a year, and liabilities of US$505.0m falling due after that. Offsetting this, it had US$467.8m in cash and US$93.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$137.2m.
Given Tandem Diabetes Care has a market capitalization of US$2.55b, 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. Despite its noteworthy liabilities, Tandem Diabetes Care boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Tandem Diabetes Care can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Tandem Diabetes Care made a loss at the EBIT level, and saw its revenue drop to US$770m, which is a fall of 3.1%. We would much prefer see growth.
So How Risky Is Tandem Diabetes Care?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Tandem Diabetes Care lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$67m and booked a US$141m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$120.3m. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Tandem Diabetes Care has 2 warning signs we think you should be aware of.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.
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