Health Check: How Prudently Does Thrive Tribe Technologies (ASX:1TT) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Thrive Tribe Technologies Limited (ASX:1TT) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Thrive Tribe Technologies

What Is Thrive Tribe Technologies's Net Debt?

As you can see below, at the end of June 2023, Thrive Tribe Technologies had AU$5.00m of debt, up from none a year ago. Click the image for more detail. But it also has AU$5.14m in cash to offset that, meaning it has AU$136.5k net cash.

How Strong Is Thrive Tribe Technologies' Balance Sheet?

We can see from the most recent balance sheet that Thrive Tribe Technologies had liabilities of AU$492.2k falling due within a year, and liabilities of AU$5.00m due beyond that. Offsetting these obligations, it had cash of AU$5.14m as well as receivables valued at AU$624.7k due within 12 months. So it can boast AU$269.1k more liquid assets than total liabilities.

This surplus suggests that Thrive Tribe Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Thrive Tribe Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Thrive Tribe Technologies will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Given it has no significant operating revenue at the moment, shareholders will be hoping Thrive Tribe Technologies can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is Thrive Tribe Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Thrive Tribe Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through AU$1.4m of cash and made a loss of AU$1.4m. With only AU$136.5k on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 5 warning signs we've spotted with Thrive Tribe Technologies .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.