Here's Why Tigbur - Temporary Professional Personnel (TLV:TIGBUR) Can Manage Its Debt Responsibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Tigbur - Temporary Professional Personnel Ltd. (TLV:TIGBUR) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

View our latest analysis for Tigbur - Temporary Professional Personnel

How Much Debt Does Tigbur - Temporary Professional Personnel Carry?

The image below, which you can click on for greater detail, shows that Tigbur - Temporary Professional Personnel had debt of ₪78.0m at the end of September 2020, a reduction from ₪109.0m over a year. However, its balance sheet shows it holds ₪85.0m in cash, so it actually has ₪7.02m net cash.

How Strong Is Tigbur - Temporary Professional Personnel's Balance Sheet?

The latest balance sheet data shows that Tigbur - Temporary Professional Personnel had liabilities of ₪187.4m due within a year, and liabilities of ₪16.0m falling due after that. Offsetting this, it had ₪85.0m in cash and ₪140.6m in receivables that were due within 12 months. So it can boast ₪22.2m more liquid assets than total liabilities.

It's good to see that Tigbur - Temporary Professional Personnel has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Tigbur - Temporary Professional Personnel boasts net cash, so it's fair to say it does not have a heavy debt load!

Unfortunately, Tigbur - Temporary Professional Personnel's EBIT flopped 11% over the last four quarters. If that sort of decline is not arrested, then the managing its debt will be harder than selling broccoli flavoured ice-cream for a premium. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Tigbur - Temporary Professional Personnel 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Tigbur - Temporary Professional Personnel has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Tigbur - Temporary Professional Personnel actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Tigbur - Temporary Professional Personnel has net cash of ₪7.02m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₪49m, being 144% of its EBIT. So we are not troubled with Tigbur - Temporary Professional Personnel's debt use. 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. Take risks, for example - Tigbur - Temporary Professional Personnel has 5 warning signs (and 1 which can't be ignored) we think you should know about.

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.

If you decide to trade Tigbur - Temporary Professional Personnel, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.