Is Tempus AI (NASDAQ:TEM) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Tempus AI, Inc. (NASDAQ:TEM) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Tempus AI Carry?

As you can see below, Tempus AI had US$435.4m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$448.3m in cash offsetting this, leading to net cash of US$12.8m.

How Healthy Is Tempus AI's Balance Sheet?

The latest balance sheet data shows that Tempus AI had liabilities of US$291.1m due within a year, and liabilities of US$578.7m falling due after that. Offsetting these obligations, it had cash of US$448.3m as well as receivables valued at US$154.8m due within 12 months. So it has liabilities totalling US$266.7m more than its cash and near-term receivables, combined.

Given Tempus AI has a market capitalization of US$8.84b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Tempus AI also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Tempus AI'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.

View our latest analysis for Tempus AI

In the last year Tempus AI wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to US$693m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Tempus AI?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Tempus AI had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$211m and booked a US$746m accounting loss. But at least it has US$12.8m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Tempus AI may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. Be aware that Tempus AI is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.