Is Tandem Diabetes Care (NASDAQ:TNDM) Using Debt In A Risky Way?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. 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 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 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. 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.

View our latest analysis for Tandem Diabetes Care

What Is Tandem Diabetes Care's Net Debt?

As you can see below, Tandem Diabetes Care had US$284.6m of debt, at September 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has US$498.2m in cash to offset that, meaning it has US$213.6m net cash.

A Look At Tandem Diabetes Care's Liabilities

According to the last reported balance sheet, Tandem Diabetes Care had liabilities of US$187.1m due within 12 months, and liabilities of US$438.8m due beyond 12 months. Offsetting this, it had US$498.2m in cash and US$100.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$27.4m.

Having regard to Tandem Diabetes Care's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$1.54b company is struggling for cash, we still think it's worth monitoring its 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 ultimately the future profitability of the business will decide if Tandem Diabetes Care 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.

In the last year Tandem Diabetes Care had a loss before interest and tax, and actually shrunk its revenue by 2.4%, to US$771m. That's not what we would hope to see.

So How Risky Is Tandem Diabetes Care?

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 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$49m and booked a US$208m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$213.6m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Tandem Diabetes Care , and understanding them should be part of your investment process.

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.