Does Tootsie Roll Industries (NYSE:TR) Have A Healthy Balance Sheet?

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 Tootsie Roll Industries, Inc. (NYSE:TR) 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 is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Tootsie Roll Industries

How Much Debt Does Tootsie Roll Industries Carry?

The chart below, which you can click on for greater detail, shows that Tootsie Roll Industries had US$8.55m in debt in June 2024; about the same as the year before. But on the other hand it also has US$131.2m in cash, leading to a US$122.6m net cash position.

How Strong Is Tootsie Roll Industries' Balance Sheet?

The latest balance sheet data shows that Tootsie Roll Industries had liabilities of US$86.8m due within a year, and liabilities of US$174.7m falling due after that. Offsetting this, it had US$131.2m in cash and US$52.6m in receivables that were due within 12 months. So its liabilities total US$77.7m more than the combination of its cash and short-term receivables.

Given Tootsie Roll Industries has a market capitalization of US$2.30b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Tootsie Roll Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that Tootsie Roll Industries grew its EBIT at 16% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Tootsie Roll Industries's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Tootsie Roll Industries may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Tootsie Roll Industries produced sturdy free cash flow equating to 57% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about Tootsie Roll Industries's liabilities, but we can be reassured by the fact it has has net cash of US$122.6m. And we liked the look of last year's 16% year-on-year EBIT growth. So we don't think Tootsie Roll Industries's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Tootsie Roll Industries, you may well want to click here to check an interactive graph of its earnings per share history.

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.