We Think Travel Technology Interactive (EPA:ALTTI) Can Manage Its Debt With Ease

Warren Buffett famously said, '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. As with many other companies Travel Technology Interactive (EPA:ALTTI) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. 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 Travel Technology Interactive

What Is Travel Technology Interactive's Debt?

As you can see below, Travel Technology Interactive had €1.97m of debt at December 2022, down from €2.12m a year prior. But it also has €2.69m in cash to offset that, meaning it has €722.0k net cash.

A Look At Travel Technology Interactive's Liabilities

Zooming in on the latest balance sheet data, we can see that Travel Technology Interactive had liabilities of €1.87m due within 12 months and liabilities of €1.70m due beyond that. Offsetting this, it had €2.69m in cash and €1.75m in receivables that were due within 12 months. So it actually has €868.0k 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. Simply put, the fact that Travel Technology Interactive has more cash than debt is arguably a good indication that it can manage its debt safely.

Better yet, Travel Technology Interactive grew its EBIT by 200% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Travel Technology Interactive will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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. Over the last two years, Travel Technology Interactive recorded free cash flow worth a fulsome 92% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Travel Technology Interactive has €722.0k in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of €1.8m, being 92% of its EBIT. So is Travel Technology Interactive's debt a risk? It doesn't seem so to us. 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. Be aware that Travel Technology Interactive is showing 3 warning signs in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.