Teladoc Health (NYSE:TDOC) Is Making Moderate Use Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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, Teladoc Health, Inc. (NYSE:TDOC) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Teladoc Health

What Is Teladoc Health's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2021 Teladoc Health had debt of US$1.23b, up from US$977.0m in one year. However, it also had US$826.4m in cash, and so its net debt is US$407.0m.

A Look At Teladoc Health's Liabilities

The latest balance sheet data shows that Teladoc Health had liabilities of US$302.1m due within a year, and liabilities of US$1.36b falling due after that. Offsetting this, it had US$826.4m in cash and US$178.1m in receivables that were due within 12 months. So its liabilities total US$660.6m more than the combination of its cash and short-term receivables.

Of course, Teladoc Health has a titanic market capitalization of US$11.9b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Teladoc Health's ability to maintain a healthy balance sheet going forward. 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 Teladoc Health wasn't profitable at an EBIT level, but managed to grow its revenue by 115%, to US$1.9b. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Despite the top line growth, Teladoc Health still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$603m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$54m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 4 warning signs with Teladoc Health , 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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