Is Time Watch Investments (HKG:2033) Using Debt Sensibly?

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.' 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. As with many other companies Time Watch Investments Limited (HKG:2033) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Time Watch Investments Carry?

As you can see below, Time Watch Investments had HK$15.6m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have HK$1.03b in cash offsetting this, leading to net cash of HK$1.01b.

A Look At Time Watch Investments' Liabilities

The latest balance sheet data shows that Time Watch Investments had liabilities of HK$159.0m due within a year, and liabilities of HK$47.9m falling due after that. On the other hand, it had cash of HK$1.03b and HK$151.7m worth of receivables due within a year. So it actually has HK$970.0m more liquid assets than total liabilities.

This surplus liquidity suggests that Time Watch Investments' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Time Watch Investments has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Time Watch Investments's earnings that will influence how the balance sheet holds up in the future. 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.

Check out our latest analysis for Time Watch Investments

In the last year Time Watch Investments had a loss before interest and tax, and actually shrunk its revenue by 16%, to HK$792m. That's not what we would hope to see.

So How Risky Is Time Watch Investments?

While Time Watch Investments lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of HK$11m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. The next few years will be important as the business matures. 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 Time Watch Investments is showing 5 warning signs in our investment analysis , and 1 of those is a bit concerning...

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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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.