Is Triunfo Participações e Investimentos (BVMF:TPIS3) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Triunfo Participações e Investimentos S.A. (BVMF:TPIS3) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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 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.

Check out our latest analysis for Triunfo Participações e Investimentos

What Is Triunfo Participações e Investimentos's Debt?

You can click the graphic below for the historical numbers, but it shows that Triunfo Participações e Investimentos had R$1.81b of debt in March 2021, down from R$1.99b, one year before. However, it does have R$75.4m in cash offsetting this, leading to net debt of about R$1.73b.

How Strong Is Triunfo Participações e Investimentos' Balance Sheet?

We can see from the most recent balance sheet that Triunfo Participações e Investimentos had liabilities of R$851.4m falling due within a year, and liabilities of R$1.58b due beyond that. Offsetting this, it had R$75.4m in cash and R$81.6m in receivables that were due within 12 months. So its liabilities total R$2.28b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the R$435.5m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Triunfo Participações e Investimentos would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Triunfo Participações e Investimentos's earnings that will influence how the balance sheet holds up in the future. 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.

It seems likely shareholders hope that Triunfo Participações e Investimentos can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

Caveat Emptor

Over the last twelve months Triunfo Participações e Investimentos produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable R$86m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. However, we note that trailing twelve month EBIT is worse than the free cash flow of R$137m and the profit of R$155m. So one might argue that there's still a chance it can get things on the right track. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 5 warning signs for Triunfo Participações e Investimentos you should be aware of, and 1 of them makes us a bit uncomfortable.

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.
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