Here's Why Thunderbird Entertainment Group (CVE:TBRD) Can Afford Some Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Thunderbird Entertainment Group Inc. (CVE:TBRD) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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, plenty of companies use debt to fund growth, without any negative consequences. 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

How Much Debt Does Thunderbird Entertainment Group Carry?

As you can see below, Thunderbird Entertainment Group had CA$50.4m of debt at June 2023, down from CA$57.3m a year prior. However, it does have CA$30.9m in cash offsetting this, leading to net debt of about CA$19.5m.

How Healthy Is Thunderbird Entertainment Group's Balance Sheet?

The latest balance sheet data shows that Thunderbird Entertainment Group had liabilities of CA$124.9m due within a year, and liabilities of CA$24.0m falling due after that. Offsetting this, it had CA$30.9m in cash and CA$102.2m in receivables that were due within 12 months. So its liabilities total CA$15.7m more than the combination of its cash and short-term receivables.

Since publicly traded Thunderbird Entertainment Group shares are worth a total of CA$110.4m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Thunderbird Entertainment Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Thunderbird Entertainment Group reported revenue of CA$167m, which is a gain of 12%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Thunderbird Entertainment Group had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CA$4.3m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of CA$5.0m into a profit. In the meantime, we consider the stock very risky. 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. Be aware that Thunderbird Entertainment Group is showing 1 warning sign in our investment analysis , you should know about...

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.