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.' 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. As with many other companies Trump Media & Technology Group Corp. (NASDAQ:DJT) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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

What Is Trump Media & Technology Group's Net Debt?

As you can see below, Trump Media & Technology Group had US$9.43m of debt at September 2024, down from US$43.9m a year prior. However, its balance sheet shows it holds US$672.9m in cash, so it actually has US$663.4m net cash.

How Strong Is Trump Media & Technology Group's Balance Sheet?

We can see from the most recent balance sheet that Trump Media & Technology Group had liabilities of US$14.4m falling due within a year, and liabilities of US$6.86m due beyond that. Offsetting this, it had US$672.9m in cash and US$14.8k in receivables that were due within 12 months. So it can boast US$651.7m more liquid assets than total liabilities.

This surplus suggests that Trump Media & Technology Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Trump Media & Technology Group has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Trump Media & Technology Group 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.

Over 12 months, Trump Media & Technology Group made a loss at the EBIT level, and saw its revenue drop to US$3.4m, which is a fall of 27%. That makes us nervous, to say the least.

So How Risky Is Trump Media & Technology Group?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Trump Media & Technology Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$64m and booked a US$372m accounting loss. But the saving grace is the US$663.4m on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 5 warning signs for Trump Media & Technology Group (3 are concerning) 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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