Travel Technology Interactive (EPA:ALTTI) Could Easily Take On More Debt

October 17, 2023

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.' 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. We can see that Travel Technology Interactive (EPA:ALTTI) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Travel Technology Interactive

What Is Travel Technology Interactive's Debt?

The image below, which you can click on for greater detail, shows that Travel Technology Interactive had debt of €1.80m at the end of June 2023, a reduction from €2.14m over a year. However, it does have €2.69m in cash offsetting this, leading to net cash of €893.0k.

debt-equity-history-analysis — ENXTPA:ALTTI Debt to Equity History October 17th 2023

How Strong Is Travel Technology Interactive's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Travel Technology Interactive had liabilities of €1.83m due within 12 months and liabilities of €1.49m due beyond that. Offsetting this, it had €2.69m in cash and €1.69m in receivables that were due within 12 months. So it actually has €1.06m more liquid assets than total liabilities.

This surplus suggests that Travel Technology Interactive has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Travel Technology Interactive boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Travel Technology Interactive has boosted its EBIT by 91%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Travel Technology Interactive's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Travel Technology Interactive may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Travel Technology Interactive generated free cash flow amounting to a very robust 87% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Travel Technology Interactive has net cash of €893.0k, as well as more liquid assets than liabilities. And it impressed us with free cash flow of €2.5m, being 87% of its EBIT. So we don't think Travel Technology Interactive's use of debt is 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Travel Technology Interactive (of which 1 shouldn't be ignored!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.