Does TOMI Environmental Solutions (NASDAQ:TOMZ) Have A Healthy Balance Sheet?

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.' 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. We can see that TOMI Environmental Solutions, Inc. (NASDAQ:TOMZ) does use debt in its business. But is this debt a concern to shareholders?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for TOMI Environmental Solutions

What Is TOMI Environmental Solutions's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 TOMI Environmental Solutions had US$2.30m of debt, an increase on none, over one year. But it also has US$2.34m in cash to offset that, meaning it has US$41.0k net cash.

How Healthy Is TOMI Environmental Solutions' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TOMI Environmental Solutions had liabilities of US$2.06m due within 12 months and liabilities of US$2.94m due beyond that. On the other hand, it had cash of US$2.34m and US$2.59m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that TOMI Environmental Solutions' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$12.7m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, TOMI Environmental Solutions boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if TOMI Environmental Solutions 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, TOMI Environmental Solutions made a loss at the EBIT level, and saw its revenue drop to US$7.4m, which is a fall of 12%. We would much prefer see growth.

So How Risky Is TOMI Environmental Solutions?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year TOMI Environmental Solutions 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$3.8m and booked a US$3.4m accounting loss. With only US$41.0k on the balance sheet, it would appear that its going to need to raise capital again soon. 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. For instance, we've identified 4 warning signs for TOMI Environmental Solutions (2 are concerning) 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.