Would Medicalgorithmics (WSE:MDG) Be Better Off With Less Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Medicalgorithmics S.A. (WSE:MDG) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Medicalgorithmics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Medicalgorithmics had zł9.96m of debt, an increase on zł3.13m, over one year. However, because it has a cash reserve of zł5.57m, its net debt is less, at about zł4.39m.

How Healthy Is Medicalgorithmics' Balance Sheet?

We can see from the most recent balance sheet that Medicalgorithmics had liabilities of zł11.3m falling due within a year, and liabilities of zł21.0m due beyond that. On the other hand, it had cash of zł5.57m and zł6.59m worth of receivables due within a year. So its liabilities total zł20.1m more than the combination of its cash and short-term receivables.

Given Medicalgorithmics has a market capitalization of zł398.1m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. But either way, Medicalgorithmics has virtually no net debt, 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 Medicalgorithmics 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.

Check out our latest analysis for Medicalgorithmics

Over 12 months, Medicalgorithmics made a loss at the EBIT level, and saw its revenue drop to zł24m, which is a fall of 39%. That makes us nervous, to say the least.

Caveat Emptor

While Medicalgorithmics's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost zł17m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled zł19m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. For riskier companies like Medicalgorithmics I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.