Tilray Brands (NASDAQ:TLRY) Is Carrying A Fair Bit Of Debt

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Tilray Brands, Inc. (NASDAQ:TLRY) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Tilray Brands

What Is Tilray Brands's Debt?

The image below, which you can click on for greater detail, shows that Tilray Brands had debt of US$454.4m at the end of November 2023, a reduction from US$592.9m over a year. However, because it has a cash reserve of US$259.8m, its net debt is less, at about US$194.6m.

How Healthy Is Tilray Brands' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tilray Brands had liabilities of US$395.0m due within 12 months and liabilities of US$542.2m due beyond that. On the other hand, it had cash of US$259.8m and US$90.6m worth of receivables due within a year. So it has liabilities totalling US$586.8m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Tilray Brands is worth US$1.51b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Tilray Brands's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Tilray Brands reported revenue of US$700m, which is a gain of 16%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Tilray Brands had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$171m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$45m in negative free cash flow over the last twelve months. 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. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Tilray Brands that you should be aware of.

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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