Does TransMedics Group (NASDAQ:TMDX) Have A Healthy Balance Sheet?

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. We note that TransMedics Group, Inc. (NASDAQ:TMDX) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for TransMedics Group

How Much Debt Does TransMedics Group Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 TransMedics Group had US$504.7m of debt, an increase on US$35.5m, over one year. However, its balance sheet shows it holds US$582.2m in cash, so it actually has US$77.5m net cash.

A Look At TransMedics Group's Liabilities

The latest balance sheet data shows that TransMedics Group had liabilities of US$32.0m due within a year, and liabilities of US$513.1m falling due after that. Offsetting this, it had US$582.2m in cash and US$47.5m in receivables that were due within 12 months. So it can boast US$84.6m more liquid assets than total liabilities.

This short term liquidity is a sign that TransMedics Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, TransMedics Group 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 TransMedics Group 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, TransMedics Group reported revenue of US$151m, which is a gain of 194%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is TransMedics Group?

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 TransMedics Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$41m and booked a US$18m accounting loss. But at least it has US$77.5m on the balance sheet to spend on growth, near-term. Importantly, TransMedics Group's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great 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 example, we've discovered 1 warning sign for TransMedics Group that you should be aware of before investing here.

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.