We Think TPXimpact Holdings (LON:TPX) Has A Fair Chunk Of Debt

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 TPXimpact Holdings plc (LON:TPX) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for TPXimpact Holdings

What Is TPXimpact Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that TPXimpact Holdings had debt of UK£16.1m at the end of March 2024, a reduction from UK£24.3m over a year. However, it also had UK£8.93m in cash, and so its net debt is UK£7.12m.

A Look At TPXimpact Holdings' Liabilities

The latest balance sheet data shows that TPXimpact Holdings had liabilities of UK£14.5m due within a year, and liabilities of UK£20.6m falling due after that. On the other hand, it had cash of UK£8.93m and UK£15.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by UK£11.1m.

This deficit isn't so bad because TPXimpact Holdings is worth UK£35.6m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine TPXimpact Holdings'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, TPXimpact Holdings saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months TPXimpact Holdings produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping UK£23m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of UK£22m. So in short it's a really risky stock. 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. For instance, we've identified 2 warning signs for TPXimpact Holdings that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.