Does Thunderbird Entertainment Group (CVE:TBRD) Have A Healthy Balance Sheet?

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.' 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 can see that Thunderbird Entertainment Group Inc. (CVE:TBRD) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Thunderbird Entertainment Group

What Is Thunderbird Entertainment Group's Debt?

The image below, which you can click on for greater detail, shows that Thunderbird Entertainment Group had debt of CA$27.6m at the end of March 2024, a reduction from CA$31.7m over a year. However, its balance sheet shows it holds CA$37.3m in cash, so it actually has CA$9.69m net cash.

A Look At Thunderbird Entertainment Group's Liabilities

Zooming in on the latest balance sheet data, we can see that Thunderbird Entertainment Group had liabilities of CA$104.4m due within 12 months and liabilities of CA$21.5m due beyond that. Offsetting this, it had CA$37.3m in cash and CA$77.0m in receivables that were due within 12 months. So its liabilities total CA$11.7m more than the combination of its cash and short-term receivables.

Given Thunderbird Entertainment Group has a market capitalization of CA$102.1m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Thunderbird Entertainment Group 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 it is future earnings, more than anything, that will determine Thunderbird Entertainment Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Thunderbird Entertainment Group had a loss before interest and tax, and actually shrunk its revenue by 13%, to CA$151m. That's not what we would hope to see.

So How Risky Is Thunderbird Entertainment Group?

While Thunderbird Entertainment Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CA$23m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Thunderbird Entertainment Group .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.