Does Liberty TripAdvisor Holdings (NASDAQ:LTRP.A) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 can see that Liberty TripAdvisor Holdings, Inc. (NASDAQ:LTRP.A) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Liberty TripAdvisor Holdings

What Is Liberty TripAdvisor Holdings's Debt?

The chart below, which you can click on for greater detail, shows that Liberty TripAdvisor Holdings had US$1.36b in debt in March 2022; about the same as the year before. However, because it has a cash reserve of US$817.0m, its net debt is less, at about US$546.0m.

How Strong Is Liberty TripAdvisor Holdings' Balance Sheet?

The latest balance sheet data shows that Liberty TripAdvisor Holdings had liabilities of US$517.0m due within a year, and liabilities of US$1.85b falling due after that. Offsetting this, it had US$817.0m in cash and US$227.0m in receivables that were due within 12 months. So it has liabilities totalling US$1.32b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$180.6m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Liberty TripAdvisor Holdings would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Liberty TripAdvisor Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Liberty TripAdvisor Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 132%, to US$1.0b. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Even though Liberty TripAdvisor Holdings managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable US$110m at the EBIT level. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But we note that trailing twelve month EBIT is worse than the free cash flow of US$144m and the profit of US$242m. So its situation may not be as precarious as the EBIT would imply. For riskier companies like Liberty TripAdvisor Holdings I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.