Does Tandem Diabetes Care (NASDAQ:TNDM) Have A Healthy Balance Sheet?

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. Importantly, Tandem Diabetes Care, Inc. (NASDAQ:TNDM) does carry debt. But the more important question is: how much risk is that debt creating?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Tandem Diabetes Care

What Is Tandem Diabetes Care's Debt?

As you can see below, Tandem Diabetes Care had US$284.1m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$507.2m in cash offsetting this, leading to net cash of US$223.1m.

How Healthy Is Tandem Diabetes Care's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tandem Diabetes Care had liabilities of US$174.7m due within 12 months and liabilities of US$442.8m due beyond that. Offsetting this, it had US$507.2m in cash and US$98.7m in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Tandem Diabetes Care's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$1.42b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Tandem Diabetes Care 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 it is future earnings, more than anything, that will determine Tandem Diabetes Care'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.

In the last year Tandem Diabetes Care wasn't profitable at an EBIT level, but managed to grow its revenue by 3.2%, to US$790m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Tandem Diabetes Care?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Tandem Diabetes Care 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$41m and booked a US$224m accounting loss. Given it only has net cash of US$223.1m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Tandem Diabetes Care you should be aware of.

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.

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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.