TELA Bio (NASDAQ:TELA) Has Debt But No Earnings; Should You Worry?

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.' 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 TELA Bio, Inc. (NASDAQ:TELA) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for TELA Bio

What Is TELA Bio's Debt?

The chart below, which you can click on for greater detail, shows that TELA Bio had US$40.2m in debt in June 2023; about the same as the year before. However, it does have US$65.3m in cash offsetting this, leading to net cash of US$25.1m.

A Look At TELA Bio's Liabilities

According to the last reported balance sheet, TELA Bio had liabilities of US$13.0m due within 12 months, and liabilities of US$41.3m due beyond 12 months. On the other hand, it had cash of US$65.3m and US$7.89m worth of receivables due within a year. So it can boast US$18.8m more liquid assets than total liabilities.

This short term liquidity is a sign that TELA Bio could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, TELA Bio boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine TELA Bio'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.

Over 12 months, TELA Bio reported revenue of US$49m, which is a gain of 42%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is TELA Bio?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year TELA Bio had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$43m and booked a US$44m accounting loss. However, it has net cash of US$25.1m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, TELA Bio may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for TELA Bio that 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.