Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Tilray Brands Carry?

The image below, which you can click on for greater detail, shows that Tilray Brands had debt of US$321.8m at the end of May 2024, a reduction from US$579.8m over a year. On the flip side, it has US$260.5m in cash leading to net debt of about US$61.3m.

How Healthy Is Tilray Brands' Balance Sheet?

According to the last reported balance sheet, Tilray Brands had liabilities of US$299.2m due within 12 months, and liabilities of US$479.3m due beyond 12 months. Offsetting these obligations, it had cash of US$260.5m as well as receivables valued at US$101.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$416.3m.

While this might seem like a lot, it is not so bad since Tilray Brands has a market capitalization of US$1.52b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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$789m, which is a gain of 26%, 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

Despite the top line growth, Tilray Brands still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$109m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$60m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. Be aware that Tilray Brands is showing 2 warning signs in our investment analysis , you should know about...

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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