Is EDAP TMS (NASDAQ:EDAP) Using Too Much Debt?

Warren Buffett famously said, '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. As with many other companies EDAP TMS S.A. (NASDAQ:EDAP) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for EDAP TMS

How Much Debt Does EDAP TMS Carry?

The image below, which you can click on for greater detail, shows that EDAP TMS had debt of €6.47m at the end of September 2024, a reduction from €6.76m over a year. But on the other hand it also has €25.5m in cash, leading to a €19.0m net cash position.

How Healthy Is EDAP TMS' Balance Sheet?

The latest balance sheet data shows that EDAP TMS had liabilities of €29.4m due within a year, and liabilities of €7.02m falling due after that. Offsetting this, it had €25.5m in cash and €16.2m in receivables that were due within 12 months. So it actually has €5.26m 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! 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, EDAP TMS reported revenue of €63m, which is a gain of 12%, 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?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year EDAP TMS had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €23m of cash and made a loss of €22m. However, it has net cash of €19.0m, so it has a bit of time before it will need more capital. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with EDAP TMS , and understanding them should be part of your investment process.

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.