Thrive Tribe Technologies (ASX:1TT) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Thrive Tribe Technologies Limited (ASX:1TT) does carry debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Thrive Tribe Technologies

What Is Thrive Tribe Technologies's Debt?

As you can see below, at the end of December 2023, Thrive Tribe Technologies had AU$4.50m of debt, up from none a year ago. Click the image for more detail. However, because it has a cash reserve of AU$2.18m, its net debt is less, at about AU$2.32m.

How Strong Is Thrive Tribe Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Thrive Tribe Technologies had liabilities of AU$575.0k due within 12 months and liabilities of AU$4.50m due beyond that. Offsetting these obligations, it had cash of AU$2.18m as well as receivables valued at AU$648.3k due within 12 months. So it has liabilities totalling AU$2.25m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Thrive Tribe Technologies is worth AU$7.42m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Thrive Tribe Technologies reported revenue of AU$870k, which is a gain of 81%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate Thrive Tribe Technologies's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Its EBIT loss was a whopping AU$2.1m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled AU$3.6m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Thrive Tribe Technologies is showing 5 warning signs in our investment analysis , and 4 of those are a bit unpleasant...

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.