Tandem Diabetes Care (NASDAQ: TNDM) Seems to Use Debt Quite Wisely
Warren Buffett said: “Volatility is far from synonymous with risk”. So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. Like many other companies Tandem Diabetes Care, Inc. (NASDAQ: TNDM) uses debt. But does this debt concern shareholders?
When is debt dangerous?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, many companies use debt to finance their growth without negative consequences. When we think of a business’s use of debt, we first look at cash flow and debt together.
Check out our latest review for Tandem Diabetes Care
What is Tandem Diabetes Care’s net debt?
You can click on the graph below for historical numbers, but it shows that in March 2021, Tandem Diabetes Care had a debt of US $ 280.2 million, an increase from none, year over year. However, his balance sheet shows that he holds $ 513.4 million in cash, so he actually has $ 233.3 million in net cash.
How strong is Tandem Diabetes Care’s track record?
The latest balance sheet data shows Tandem Diabetes Care had liabilities of US $ 103.4 million due within one year, and liabilities of US $ 337.4 million due thereafter. On the other hand, it had US $ 513.4 million in cash and US $ 73.7 million in receivables due within one year. So he actually has $ 146.3 million Following liquid assets as total liabilities.
This surplus suggests that Tandem Diabetes Care has a prudent balance sheet and could probably eliminate its debt without too much difficulty. In short, Tandem Diabetes Care has crisp cash flow, so it’s fair to say that it doesn’t have a lot of debt!
We also note that Tandem Diabetes Care improved its EBIT from a loss last year to a positive amount of US $ 2.4 million. The balance sheet is clearly the area you need to focus on when analyzing debt. But ultimately, the future profitability of the business will decide whether 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 analyst earnings forecast report interesting.
Finally, a business can only repay its debts with hard cash, not with book profits. Although Tandem Diabetes Care has net cash on its balance sheet, it is still worth examining its ability to convert earnings before interest and taxes (EBIT) into free cash flow, to help us understand how fast it is building. (or erode) that cash balance. Fortunately for all shareholders, Tandem Diabetes Care actually generated more free cash flow than EBIT over the past year. There is nothing better than cash flow to stay in the good graces of your lenders.
While we sympathize with investors who find debt worrying, you should keep in mind that Tandem Diabetes Care has net cash of US $ 233.3 million, as well as liquid assets rather than liabilities. The icing on the cake is that he converted 1,889% of that EBIT into free cash flow, bringing in US $ 45 million. We are therefore not concerned with the use of debt by Tandem Diabetes Care. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. Note that Tandem Diabetes Care shows 3 warning signs in our investment analysis , you must know…
Of course, if you are the type of investor who prefers to buy stocks without going into debt, don’t hesitate to check out our exclusive list of cash-flow-growing stocks today.
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