Would Teladoc Health (NYSE:TDOC) Be Better Off With Less Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Teladoc Health, Inc. (NYSE:TDOC) makes use of 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Debt?

As you can see below, Teladoc Health had US$1.54b of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$1.10b in cash offsetting this, leading to net debt of about US$441.6m.

A Look At Teladoc Health's Liabilities

According to the last reported balance sheet, Teladoc Health had liabilities of US$388.8m due within 12 months, and liabilities of US$1.64b due beyond 12 months. On the other hand, it had cash of US$1.10b and US$227.9m worth of receivables due within a year. So it has liabilities totalling US$706.1m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Teladoc Health has a market capitalization of US$1.91b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Teladoc Health 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.

Over 12 months, Teladoc Health reported revenue of US$2.6b, which is a gain of 6.0%, 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.

Caveat Emptor

Importantly, Teladoc Health had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$225m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$233m into a profit. In the meantime, we consider the stock very risky. 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 2 warning signs with Teladoc Health , and understanding them should be part of your investment process.

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.