Is EDAP TMS (NASDAQ:EDAP) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. We note that EDAP TMS S.A. (NASDAQ:EDAP) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does EDAP TMS Carry?

The image below, which you can click on for greater detail, shows that at March 2025 EDAP TMS had debt of €10.7m, up from €7.13m in one year. But it also has €22.8m in cash to offset that, meaning it has €12.1m net cash.

A Look At EDAP TMS' Liabilities

The latest balance sheet data shows that EDAP TMS had liabilities of €33.6m due within a year, and liabilities of €6.97m falling due after that. Offsetting this, it had €22.8m in cash and €16.2m in receivables that were due within 12 months. So it has liabilities totalling €1.49m more than its cash and near-term receivables, combined.

Since publicly traded EDAP TMS shares are worth a total of €52.9m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, EDAP TMS also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if EDAP TMS 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.

Check out our latest analysis for EDAP TMS

Over 12 months, EDAP TMS reported revenue of €63m, which is a gain of 3.7%, although it did not report any earnings before interest and tax. 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 we do note that EDAP TMS had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €19m of cash and made a loss of €22m. However, it has net cash of €12.1m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - EDAP TMS has 3 warning signs we think you should be aware of.

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.