Tandem Diabetes Care Inc (NASDAQ:TNDM): Time For A Financial Health Check
While small-cap stocks, such as Tandem Diabetes Care Inc (NASDAQ:TNDM) with its market cap of US$1.18b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Medical Equipment industry, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I suggest you dig deeper yourself into TNDM here.
How does TNDM’s operating cash flow stack up against its debt?
TNDM’s debt level has been constant at around US$76.54m over the previous year – this includes both the current and long-term debt. At this current level of debt, TNDM currently has US$14.18m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can take a look at some of TNDM’s operating efficiency ratios such as ROA here.
Can TNDM meet its short-term obligations with the cash in hand?
At the current liabilities level of US$36.09m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.78x. Generally, for Medical Equipment companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does TNDM face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, TNDM is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since TNDM is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
TNDM’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how TNDM has been performing in the past. I suggest you continue to research Tandem Diabetes Care to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for TNDM’s future growth? Take a look at our free research report of analyst consensus for TNDM’s outlook.
Historical Performance: What has TNDM’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
