Tigbur - Temporary Professional Personnel (TLV:TIGBUR) Seems To Use Debt Quite Sensibly

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. We note that Tigbur - Temporary Professional Personnel Ltd. (TLV:TIGBUR) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Tigbur - Temporary Professional Personnel

How Much Debt Does Tigbur - Temporary Professional Personnel Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 Tigbur - Temporary Professional Personnel had ₪107.0m of debt, an increase on ₪76.8m, over one year. However, because it has a cash reserve of ₪56.5m, its net debt is less, at about ₪50.5m.

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

We can see from the most recent balance sheet that Tigbur - Temporary Professional Personnel had liabilities of ₪245.5m falling due within a year, and liabilities of ₪25.3m due beyond that. Offsetting this, it had ₪56.5m in cash and ₪214.3m in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Tigbur - Temporary Professional Personnel's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₪280.7m company is short on cash, but still worth keeping an eye on the balance sheet.

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Tigbur - Temporary Professional Personnel has net debt of just 1.2 times EBITDA, indicating that it is certainly not a reckless borrower. And this view is supported by the solid interest coverage, with EBIT coming in at 8.6 times the interest expense over the last year. Fortunately, Tigbur - Temporary Professional Personnel grew its EBIT by 6.9% in the last year, making that debt load look even more manageable. 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 Tigbur - Temporary Professional Personnel will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Looking at the most recent three years, Tigbur - Temporary Professional Personnel recorded free cash flow of 47% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Our View

Happily, Tigbur - Temporary Professional Personnel's impressive interest cover implies it has the upper hand on its debt. And we also thought its net debt to EBITDA was a positive. Looking at all the aforementioned factors together, it strikes us that Tigbur - Temporary Professional Personnel can handle its debt fairly comfortably. On the plus side, this leverage can boost shareholder returns, but the potential downside is more risk of loss, so it's worth monitoring the balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Tigbur - Temporary Professional Personnel (of which 1 is a bit concerning!) you should know about.

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.