Is ThermoGenesis Holdings (NASDAQ:THMO) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. 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 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 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for ThermoGenesis Holdings

How Much Debt Does ThermoGenesis Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 ThermoGenesis Holdings had US$8.24m of debt, an increase on US$5.26m, over one year. However, it does have US$8.67m in cash offsetting this, leading to net cash of US$425.0k.

How Healthy Is ThermoGenesis Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ThermoGenesis Holdings had liabilities of US$11.9m due within 12 months and liabilities of US$2.62m due beyond that. On the other hand, it had cash of US$8.67m and US$1.24m worth of receivables due within a year. So its liabilities total US$4.62m more than the combination of its cash and short-term receivables.

ThermoGenesis Holdings has a market capitalization of US$21.6m, so it could very likely raise cash to ameliorate 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. Despite its noteworthy liabilities, ThermoGenesis Holdings 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 ThermoGenesis Holdings can strengthen its balance sheet over time. 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$8.0m, which is a fall of 29%. To be frank that doesn't bode well.

So How Risky Is ThermoGenesis Holdings?

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 ThermoGenesis Holdings had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$11m and booked a US$12m accounting loss. However, it has net cash of US$425.0k, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for ThermoGenesis Holdings (of which 2 are significant!) you should know about.

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.

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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