Is HTG Molecular Diagnostics (NASDAQ:HTGM) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 HTG Molecular Diagnostics, Inc. (NASDAQ:HTGM) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for HTG Molecular Diagnostics

What Is HTG Molecular Diagnostics's Debt?

You can click the graphic below for the historical numbers, but it shows that HTG Molecular Diagnostics had US$10.6m of debt in June 2021, down from US$11.8m, one year before. However, its balance sheet shows it holds US$29.8m in cash, so it actually has US$19.2m net cash.

How Healthy Is HTG Molecular Diagnostics' Balance Sheet?

We can see from the most recent balance sheet that HTG Molecular Diagnostics had liabilities of US$7.14m falling due within a year, and liabilities of US$11.7m due beyond that. Offsetting these obligations, it had cash of US$29.8m as well as receivables valued at US$1.42m due within 12 months. So it can boast US$12.3m more liquid assets than total liabilities.

This surplus suggests that HTG Molecular Diagnostics is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that HTG Molecular Diagnostics has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine HTG Molecular Diagnostics's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year HTG Molecular Diagnostics had a loss before interest and tax, and actually shrunk its revenue by 45%, to US$7.9m. To be frank that doesn't bode well.

So How Risky Is HTG Molecular Diagnostics?

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 HTG Molecular Diagnostics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$17m of cash and made a loss of US$17m. However, it has net cash of US$19.2m, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - HTG Molecular Diagnostics has 4 warning signs we think 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.
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