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The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Tissue Regenix Group plc (LON:TRX) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Tissue Regenix Group
What Is Tissue Regenix Group's Debt?
As you can see below, at the end of December 2021, Tissue Regenix Group had US$4.47m of debt, up from US$3.79m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$7.71m in cash, so it actually has US$3.24m net cash.
How Healthy Is Tissue Regenix Group's Balance Sheet?
We can see from the most recent balance sheet that Tissue Regenix Group had liabilities of US$4.36m falling due within a year, and liabilities of US$8.47m due beyond that. Offsetting this, it had US$7.71m in cash and US$3.60m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.52m.
Since publicly traded Tissue Regenix Group shares are worth a total of US$39.1m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Tissue Regenix Group also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Tissue Regenix Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.