Does EDAP TMS (NASDAQ:EDAP) 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.' 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. Importantly, EDAP TMS S.A. (NASDAQ:EDAP) does carry debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for EDAP TMS

What Is EDAP TMS's Net Debt?

As you can see below, EDAP TMS had €6.76m of debt at September 2023, down from €7.95m a year prior. However, it does have €47.7m in cash offsetting this, leading to net cash of €41.0m.

How Healthy Is EDAP TMS' Balance Sheet?

The latest balance sheet data shows that EDAP TMS had liabilities of €25.9m due within a year, and liabilities of €7.23m falling due after that. Offsetting this, it had €47.7m in cash and €16.3m in receivables that were due within 12 months. So it actually has €30.8m more liquid assets than total liabilities.

This surplus suggests that EDAP TMS has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, EDAP TMS boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if EDAP TMS 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.

In the last year EDAP TMS wasn't profitable at an EBIT level, but managed to grow its revenue by 5.9%, to €57m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is EDAP TMS?

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 EDAP TMS lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of €21m and booked a €21m accounting loss. With only €41.0m 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. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for EDAP TMS you should know about.

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.