Is Tandem Diabetes Care (NASDAQ:TNDM) Weighed On By Its Debt Load?

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. Importantly, Tandem Diabetes Care, Inc. (NASDAQ:TNDM) does carry debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

See our latest analysis for Tandem Diabetes Care

What Is Tandem Diabetes Care's Debt?

As you can see below, at the end of September 2024, Tandem Diabetes Care had US$348.4m of debt, up from US$284.6m a year ago. Click the image for more detail. But it also has US$473.3m in cash to offset that, meaning it has US$124.9m net cash.

How Strong 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$259.3m due within 12 months and liabilities of US$460.7m due beyond that. Offsetting these obligations, it had cash of US$473.3m as well as receivables valued at US$107.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$139.5m.

Of course, Tandem Diabetes Care has a market capitalization of US$2.43b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Tandem Diabetes Care reported revenue of US$854m, which is a gain of 11%, although it did not report any earnings before interest and tax. 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?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Tandem Diabetes Care lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$37m of cash and made a loss of US$127m. But the saving grace is the US$124.9m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. Be aware that Tandem Diabetes Care is showing 2 warning signs in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.