Here's Why Tutor Perini (NYSE:TPC) 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. Importantly, Tutor Perini Corporation (NYSE:TPC) does carry debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Tutor Perini

What Is Tutor Perini's Net Debt?

The chart below, which you can click on for greater detail, shows that Tutor Perini had US$980.7m in debt in March 2023; about the same as the year before. However, it does have US$282.7m in cash offsetting this, leading to net debt of about US$698.0m.

How Healthy Is Tutor Perini's Balance Sheet?

We can see from the most recent balance sheet that Tutor Perini had liabilities of US$1.93b falling due within a year, and liabilities of US$1.15b due beyond that. Offsetting these obligations, it had cash of US$282.7m as well as receivables valued at US$3.00b due within 12 months. So it can boast US$200.0m more liquid assets than total liabilities.

This luscious liquidity implies that Tutor Perini's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. 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 Tutor Perini'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 Tutor Perini had a loss before interest and tax, and actually shrunk its revenue by 18%, to US$3.6b. That's not what we would hope to see.

Caveat Emptor

Not only did Tutor Perini's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable US$274m at the EBIT level. Having said that, the balance sheet has plenty of liquid assets for now. That should give the business time to grow its cashflow. The company is risky because it will grow into the future to get to profitability and free cash flow. For riskier companies like Tutor Perini I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.