Is TransMedics Group (NASDAQ:TMDX) Using Too Much 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. We can see that TransMedics Group, Inc. (NASDAQ:TMDX) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at 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 December 2022 TransMedics Group had US$58.7m of debt, an increase on US$35.2m, over one year. However, its balance sheet shows it holds US$201.2m in cash, so it actually has US$142.5m net cash.

How Healthy Is TransMedics Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TransMedics Group had liabilities of US$23.7m due within 12 months and liabilities of US$66.1m due beyond that. On the other hand, it had cash of US$201.2m and US$27.6m worth of receivables due within a year. So it can boast US$139.0m more liquid assets than total liabilities.

This surplus suggests that TransMedics Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that TransMedics Group has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if TransMedics Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year TransMedics Group wasn't profitable at an EBIT level, but managed to grow its revenue by 209%, to US$93m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is TransMedics Group?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year TransMedics Group 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$58m and booked a US$36m accounting loss. However, it has net cash of US$142.5m, so it has a bit of time before it will need more capital. 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that TransMedics Group is showing 3 warning signs in our investment analysis , you should know about...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.