Is TETRA Technologies (NYSE:TTI) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that TETRA Technologies, Inc. (NYSE:TTI) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 TETRA Technologies

How Much Debt Does TETRA Technologies Carry?

The image below, which you can click on for greater detail, shows that TETRA Technologies had debt of US$151.9m at the end of December 2021, a reduction from US$199.9m over a year. However, because it has a cash reserve of US$31.6m, its net debt is less, at about US$120.4m.

How Healthy Is TETRA Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TETRA Technologies had liabilities of US$97.1m due within 12 months and liabilities of US$202.6m due beyond that. Offsetting this, it had US$31.6m in cash and US$91.2m in receivables that were due within 12 months. So it has liabilities totalling US$177.0m more than its cash and near-term receivables, combined.

This deficit isn't so bad because TETRA Technologies is worth US$490.2m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without 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 TETRA Technologies'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 TETRA Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 2.8%, to US$388m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months TETRA Technologies produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$15m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$16m of cash over the last year. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with TETRA Technologies , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.