Triunfo Participações e Investimentos (BVMF: TPIS3) has debt but no profit; Should we be worried?

Warren Buffett said: “Volatility is far from synonymous with risk”. When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. Like many other companies Triunfo Participações e Investimentos SA (BVMF: TPIS3) uses debt. But should shareholders be concerned about its use of debt?

What risk does debt entail?

Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. When we think of a business’s use of debt, we first look at cash flow and debt together.

See our latest analysis for Triunfo Participações e Investimentos

What is the debt of Triunfo Participações e Investimentos?

As you can see below, Triunfo Participações e Investimentos had a debt of R $ 1.71 billion in September 2021, up from R $ 1.92 billion the year before. However, he has 78.0 million reais in cash offsetting this, which leads to a net debt of around 1.63 billion reais.

BOVESPA: TPIS3 History of debt to equity January 7, 2022

How strong is Triunfo Participações e Investimentos’ balance sheet?

According to the last published balance sheet, Triunfo Participações e Investimentos had liabilities of R $ 561.0 million due within 12 months and liabilities of R $ 1.74 billion beyond 12 months. In return, he had 78.0 million reals in cash and 85.3 million reals in receivables due within 12 months. It therefore has liabilities totaling 2.13 billion reais more than its combined cash and short-term receivables.

This deficit casts a shadow over the R $ 327.9million society like a towering colossus of mere mortals. We would therefore monitor its record closely, without a doubt. Ultimately, Triunfo Participações e Investimentos would likely need a major recapitalization if its creditors demanded repayment. There is no doubt that we learn the most about debt from the balance sheet. But it is the profits of Triunfo Participações e Investimentos that will influence the way the balance sheet is kept in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.

Over 12 months, Triunfo Participações e Investimentos reported a turnover of 1.1 billion reais, a gain of 6.0%, although it reported no profit before interest and taxes. We usually like to see unprofitable businesses growing faster, but each in their own way.

Emptor Warning

It is important to note that Triunfo Participações e Investimentos recorded a loss of profit before interest and taxes (EBIT) during the last year. Indeed, he lost 20 million reais in EBIT. When you combine this with the very large balance sheet liabilities mentioned above, we are so wary of them that we are basically at a loss for the right words. Like every wide shot, we’re sure it has a brilliant presentation outlining its blue sky potential. But on the bright side, the company actually generated a statutory profit of R $ 291 million and free cash flow of R $ 133 million. Thus, his situation may not be as precarious as EBIT would suggest. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. Note that Triunfo Participações e Investimentos shows 5 warning signs in our investment analysis , and 1 of them should not be ignored …

Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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