Tootsie Roll Industries (NYSE:TR) Seems To Use Debt Quite Sensibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. 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. 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.

What Is Tootsie Roll Industries's Net Debt?

The chart below, which you can click on for greater detail, shows that Tootsie Roll Industries had US$8.48m in debt in March 2025; about the same as the year before. But on the other hand it also has US$176.6m in cash, leading to a US$168.1m net cash position.

A Look At Tootsie Roll Industries' Liabilities

Zooming in on the latest balance sheet data, we can see that Tootsie Roll Industries had liabilities of US$78.2m due within 12 months and liabilities of US$184.5m due beyond that. On the other hand, it had cash of US$176.6m and US$45.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$40.4m.

Having regard to Tootsie Roll Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$3.00b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Tootsie Roll Industries also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Tootsie Roll Industries

But the other side of the story is that Tootsie Roll Industries saw its EBIT decline by 6.6% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Tootsie Roll Industries will need earnings to service that debt. 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 company can only pay off debt with cold hard cash, not accounting profits. 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 68% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

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$168.1m. And it impressed us with free cash flow of US$105m, being 68% of its EBIT. So we don't have any problem with Tootsie Roll Industries's use of debt. 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 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.