Nemaura Medical (NASDAQ:NMRD) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Nemaura Medical Inc. (NASDAQ:NMRD) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Nemaura Medical

How Much Debt Does Nemaura Medical Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Nemaura Medical had US$24.6m of debt, an increase on US$5.22m, over one year. But on the other hand it also has US$26.8m in cash, leading to a US$2.14m net cash position.

How Healthy Is Nemaura Medical's Balance Sheet?

According to the last reported balance sheet, Nemaura Medical had liabilities of US$17.2m due within 12 months, and liabilities of US$10.0m due beyond 12 months. Offsetting these obligations, it had cash of US$26.8m as well as receivables valued at US$503.6k due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Nemaura Medical's 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$122.4m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Nemaura Medical 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 Nemaura Medical's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Since Nemaura Medical doesn't have significant operating revenue, shareholders must hope it'll ramp sales of its new medical tech as soon as possible.

So How Risky Is Nemaura Medical?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Nemaura Medical had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$7.9m of cash and made a loss of US$10m. Given it only has net cash of US$2.14m, the company may need to raise more capital if it doesn't reach break-even soon. 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. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Nemaura Medical (of which 1 makes us a bit uncomfortable!) 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.

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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