Is Tribe Property Technologies (CVE:TRBE) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that Tribe Property Technologies Inc. (CVE:TRBE) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Tribe Property Technologies

What Is Tribe Property Technologies's Debt?

As you can see below, at the end of September 2024, Tribe Property Technologies had CA$14.8m of debt, up from CA$2.91m a year ago. Click the image for more detail. However, it also had CA$1.66m in cash, and so its net debt is CA$13.2m.

How Healthy Is Tribe Property Technologies' Balance Sheet?

The latest balance sheet data shows that Tribe Property Technologies had liabilities of CA$18.8m due within a year, and liabilities of CA$4.52m falling due after that. Offsetting these obligations, it had cash of CA$1.66m as well as receivables valued at CA$2.52m due within 12 months. So its liabilities total CA$19.1m more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's CA$15.6m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Tribe Property Technologies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Tribe Property Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to CA$25m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Tribe Property Technologies still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$7.0m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of CA$4.0m over the last twelve months. That means it's on the risky side of things. 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 learn about the 4 warning signs we've spotted with Tribe Property Technologies (including 3 which are a bit unpleasant) .

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.