Warren Buffett famously said, “Volatility is far from synonymous with risk.” When we think about how risky a company is, we always want to look at its use of debt, as debt overload can lead to ruin. We notice that Thunderbird Entertainment Group Inc. (CVE:TBRD) has debt on its balance sheet. But should shareholders be concerned about their use of debt?
When is debt a problem?
In general, debt only becomes a real problem when a company cannot easily pay it off, either by raising capital or with its own cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. A more usual (but still expensive) situation, however, is where a company has to dilute shareholders to a cheap share price just to get the debt under control. By replacing dilution, however, debt can be an extremely good tool for companies that need capital to invest in high-return growth. The first step when considering a company’s debt levels is to consider its cash and debt together.
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What is Thunderbird Entertainment Group’s debt?
You can click on the graphic below for the historical numbers, but it shows that Thunderbird Entertainment Group had 31.7 million. USD in debt in March 2023, down from 43.5 million On the other hand, it has 26.0 million $ in cash, leading to a net debt of about 5.71 million.
How strong is Thunderbird Entertainment Group’s balance sheet?
According to the latest reported balance, Thunderbird Entertainment Group had liabilities of DKK 97.5 million. CA$ payable within 12 months and liabilities of CA$23.9 million. CA$ payable over 12 months. On the other hand, it had cash receivables of DKK 26.0 million. $ and 89.2 million $ receivables within one year. So it has liabilities of a total of DKK 6.12 million. USD more than its cash and current receivables combined.
Since listed Thunderbird Entertainment Group shares are worth a total of 147.7 million CA$, it seems unlikely that this level of commitment would be much of a threat. That said, it’s clear that we need to continue to monitor its balance so that it doesn’t change for the worse. The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything else, that will determine Thunderbird Entertainment Group’s ability to maintain a healthy balance sheet going forward. So if you are focused on the future, check this out for free report showing analysts’ earnings forecasts.
In the last year, Thunderbird Entertainment Group was not profitable at an EBIT level, but managed to grow its revenue by 32% to 173 million. With any luck, the company will be able to grow its way to profitability.
Despite the top line growth, Thunderbird Entertainment Group still had earnings before interest and tax (EBIT) in the last year. To be specific, the EBIT loss came in at DKK 3.3 million. Given that, along with the liabilities mentioned above, it doesn’t give us much confidence that the company would need that much debt. So we think its balance is a bit strained, but not unmanageable. We’d be better off if it reversed its trailing 12-month loss of £4.3m. CA$ to a profit. So, in short, it’s a really risky stock. When analyzing debt levels, the balance sheet is the obvious place to start. But at the end of the day, any business can contain risks that exist off the balance sheet. For example, we have discovered 1 warning sign for Thunderbird Entertainment Group which you should be aware of before investing here.
Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, don’t hesitate to discover our exclusive list of net cash growth stocks today.
Valuation is complex, but we help make it simple.
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This article by Simply Wall St is of a general nature. We only provide commentary based on historical data and analyst forecasts 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 shares and does not take into account your goals or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account recent price-sensitive company announcements or qualitative material. Simply Wall St has no position in any listed stocks.