Is Liberty TripAdvisor Holdings (NASDAQ:LTRP.A) Using Too Much Debt?

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.' 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. As with many other companies Liberty TripAdvisor Holdings, Inc. (NASDAQ:LTRP.A) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Our analysis indicates that LTRP.A is potentially undervalued!

What Is Liberty TripAdvisor Holdings's Debt?

As you can see below, Liberty TripAdvisor Holdings had US$1.32b of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$1.08b in cash offsetting this, leading to net debt of about US$246.0m.

A Look At Liberty TripAdvisor Holdings' Liabilities

According to the last reported balance sheet, Liberty TripAdvisor Holdings had liabilities of US$697.0m due within 12 months, and liabilities of US$1.80b due beyond 12 months. Offsetting these obligations, it had cash of US$1.08b as well as receivables valued at US$256.0m due within 12 months. So its liabilities total US$1.16b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$183.4m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Liberty TripAdvisor Holdings would probably need a major re-capitalization if its creditors were to demand repayment. 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 if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Liberty TripAdvisor Holdings reported revenue of US$1.2b, which is a gain of 96%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

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. To be specific the EBIT loss came in at US$12m. 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. Sure, the company might have a nice story about how they are going on to a brighter future. But we note that trailing twelve month EBIT is worse than the free cash flow of US$316m and the profit of US$156m. So its situation may not be as precarious as the EBIT would imply. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Liberty TripAdvisor Holdings .

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.