Legendary fund manager Li Lu (whom Charlie Munger supported) once said, “The biggest risk in investing is not price volatility, but the possibility that you will suffer a permanent loss of capital. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Above all, Teladoc Health, Inc. (NYSE: TDOC) is in debt. But the real question is whether this debt makes the business risky.
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. Of course, debt can be an important tool in businesses, especially capital intensive businesses. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
See our latest review for Teladoc Health
What is Teladoc Health’s debt?
You can click on the graph below for historical figures, but it shows that as of June 2021, Teladoc Health had a debt of US $ 1.22 billion, an increase from US $ 948.2 million. , over one year. However, it has $ 786.3 million in cash offsetting that, leading to net debt of around $ 438.0 million.
A look at the responsibilities of Teladoc Health
We can see from the most recent balance sheet that Teladoc Health had liabilities of US $ 276.2 million maturing within one year and liabilities of US $ 1.33 billion maturing beyond that. . In return, he had $ 786.3 million in cash and $ 179.4 million in receivables due within 12 months. It therefore has a liability totaling US $ 644.4 million more than its cash and short-term receivables combined.
Of course, Teladoc Health has a titanic market cap of US $ 21.3 billion, so this liability is likely manageable. But there are enough liabilities that we would certainly recommend that shareholders continue to monitor the balance sheet going forward. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Teladoc Health can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Over the past year, Teladoc Health has not been profitable in terms of EBIT, but has managed to increase its revenue by 127%, to $ 1.6 billion. So there is no doubt that shareholders are encouraging growth
Emptor Warning
While we can certainly appreciate Teladoc Health’s revenue growth, its earnings before interest and taxes (EBIT) are not ideal. To be precise, the EBIT loss amounted to US $ 541 million. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. Quite frankly, we believe the record is far from up to par, although it could improve over time. However, it doesn’t help that he spent $ 92 million in cash in the past year. Suffice it to say that we consider the action risky. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. For example, we discovered 3 warning signs for Teladoc Santé (1 cannot be ignored!) Which you should be aware of before investing here.
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash growth net stocks today.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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