Is Tissue Regenix Group (LON:TRX) A Risky Investment?

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 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. We can see that Tissue Regenix Group plc (LON:TRX) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Tissue Regenix Group

What Is Tissue Regenix Group's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2020 Tissue Regenix Group had debt of UK£2.79m, up from UK£2.29m in one year. However, it does have UK£9.55m in cash offsetting this, leading to net cash of UK£6.76m.

A Look At Tissue Regenix Group's Liabilities

We can see from the most recent balance sheet that Tissue Regenix Group had liabilities of UK£3.26m falling due within a year, and liabilities of UK£5.62m due beyond that. Offsetting these obligations, it had cash of UK£9.55m as well as receivables valued at UK£2.71m due within 12 months. So it actually has UK£3.37m more liquid assets than total liabilities.

This surplus suggests that Tissue Regenix Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Tissue Regenix Group 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 Tissue Regenix Group 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.

Over 12 months, Tissue Regenix Group saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Tissue Regenix Group?

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 Tissue Regenix Group had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of UK£6.6m and booked a UK£9.7m accounting loss. Given it only has net cash of UK£6.76m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Tissue Regenix Group (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

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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This article by Simply Wall St is general in nature. 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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