Does Tekmar Group (LON:TGP) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Tekmar Group plc (LON:TGP) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Tekmar Group

What Is Tekmar Group's Debt?

You can click the graphic below for the historical numbers, but it shows that Tekmar Group had UK£6.18m of debt in September 2024, down from UK£6.58m, one year before. On the flip side, it has UK£4.63m in cash leading to net debt of about UK£1.55m.

A Look At Tekmar Group's Liabilities

According to the last reported balance sheet, Tekmar Group had liabilities of UK£20.9m due within 12 months, and liabilities of UK£1.81m due beyond 12 months. On the other hand, it had cash of UK£4.63m and UK£19.1m worth of receivables due within a year. So it can boast UK£998.0k more liquid assets than total liabilities.

This short term liquidity is a sign that Tekmar Group could probably pay off its debt with ease, as its balance sheet is far from stretched. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Tekmar 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.

Over 12 months, Tekmar Group made a loss at the EBIT level, and saw its revenue drop to UK£33m, which is a fall of 7.9%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Tekmar Group produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping UK£3.8m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But a profit would do more to inspire us to research the business more closely. So it seems too risky for our taste. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Tekmar Group that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.