Is MDxHealth (EBR:MDXH) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies MDxHealth SA (EBR:MDXH) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for MDxHealth

What Is MDxHealth's Debt?

The image below, which you can click on for greater detail, shows that at June 2020 MDxHealth had debt of US$9.69m, up from US$73.0k in one year. But on the other hand it also has US$23.8m in cash, leading to a US$14.1m net cash position.

A Look At MDxHealth's Liabilities

Zooming in on the latest balance sheet data, we can see that MDxHealth had liabilities of US$10.3m due within 12 months and liabilities of US$8.85m due beyond that. Offsetting these obligations, it had cash of US$23.8m as well as receivables valued at US$5.02m due within 12 months. So it actually has US$9.67m more liquid assets than total liabilities.

This short term liquidity is a sign that MDxHealth could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, MDxHealth 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 it is future earnings, more than anything, that will determine MDxHealth's ability to maintain a healthy balance sheet going forward. 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 MDxHealth had a loss before interest and tax, and actually shrunk its revenue by 51%, to US$11m. To be frank that doesn't bode well.

So How Risky Is MDxHealth?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months MDxHealth lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$20m of cash and made a loss of US$43m. With only US$14.1m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 4 warning signs we've spotted with MDxHealth (including 1 which is doesn't sit too well with us) .

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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