David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Tandem Diabetes Care, Inc. (NASDAQ:TNDM) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Tandem Diabetes Care's Debt?

As you can see below, at the end of June 2024, Tandem Diabetes Care had US$347.9m of debt, up from US$284.1m a year ago. Click the image for more detail. However, it does have US$452.4m in cash offsetting this, leading to net cash of US$104.5m.

How Healthy Is Tandem Diabetes Care's Balance Sheet?

According to the last reported balance sheet, Tandem Diabetes Care had liabilities of US$240.6m due within 12 months, and liabilities of US$463.0m due beyond 12 months. Offsetting this, it had US$452.4m in cash and US$98.1m in receivables that were due within 12 months. So its liabilities total US$153.1m more than the combination of its cash and short-term receivables.

Since publicly traded Tandem Diabetes Care shares are worth a total of US$2.31b, it seems unlikely that this level of liabilities would be a major 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, Tandem Diabetes Care also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Tandem Diabetes Care 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.

In the last year Tandem Diabetes Care's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd 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 in the last year Tandem Diabetes Care had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$64m and booked a US$136m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$104.5m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Tandem Diabetes Care .

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.