TransMedics Group (NASDAQ:TMDX) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that TransMedics Group, Inc. (NASDAQ:TMDX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out 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 March 2023 TransMedics Group had US$58.8m of debt, an increase on US$35.3m, over one year. However, it does have US$195.4m in cash offsetting this, leading to net cash of US$136.6m.

A Look At TransMedics Group's Liabilities

The latest balance sheet data shows that TransMedics Group had liabilities of US$28.6m due within a year, and liabilities of US$65.8m falling due after that. On the other hand, it had cash of US$195.4m and US$38.6m worth of receivables due within a year. So it can boast US$139.5m 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine TransMedics Group'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, TransMedics Group reported revenue of US$119m, which is a gain of 205%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is TransMedics Group?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months TransMedics Group lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$47m of cash and made a loss of US$28m. However, it has net cash of US$136.6m, 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. 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. We've identified 2 warning signs with TransMedics Group , and understanding them should be part of your investment process.

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.