Here's Why ThermoGenesis Holdings (NASDAQ:THMO) Can Afford Some 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 ThermoGenesis Holdings, Inc. (NASDAQ:THMO) makes use of debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for ThermoGenesis Holdings

What Is ThermoGenesis Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 ThermoGenesis Holdings had US$7.44m of debt, an increase on US$4.60m, over one year. However, it does have US$4.44m in cash offsetting this, leading to net debt of about US$3.01m.

A Look At ThermoGenesis Holdings' Liabilities

The latest balance sheet data shows that ThermoGenesis Holdings had liabilities of US$5.72m due within a year, and liabilities of US$8.27m falling due after that. Offsetting these obligations, it had cash of US$4.44m as well as receivables valued at US$1.70m due within 12 months. So it has liabilities totalling US$7.85m more than its cash and near-term receivables, combined.

This deficit isn't so bad because ThermoGenesis Holdings is worth US$25.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 ThermoGenesis Holdings'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.

Over 12 months, ThermoGenesis Holdings made a loss at the EBIT level, and saw its revenue drop to US$9.5m, which is a fall of 32%. That makes us nervous, to say the least.

Caveat Emptor

Not only did ThermoGenesis Holdings's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable US$9.3m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$12m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. For example ThermoGenesis Holdings has 4 warning signs (and 2 which are a bit concerning) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

When trading ThermoGenesis Holdings or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.