We Think Tigbur - Temporary Professional Personnel (TLV:TIGBUR) Can Manage Its Debt With Ease

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 Tigbur - Temporary Professional Personnel Ltd. (TLV:TIGBUR) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Tigbur - Temporary Professional Personnel

What Is Tigbur - Temporary Professional Personnel's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Tigbur - Temporary Professional Personnel had ₪83.3m of debt in December 2020, down from ₪100.8m, one year before. However, it does have ₪64.4m in cash offsetting this, leading to net debt of about ₪19.0m.

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

Zooming in on the latest balance sheet data, we can see that Tigbur - Temporary Professional Personnel had liabilities of ₪203.0m due within 12 months and liabilities of ₪18.5m due beyond that. Offsetting this, it had ₪64.4m in cash and ₪174.2m in receivables that were due within 12 months. So it actually has ₪17.1m more liquid assets than total liabilities.

This surplus suggests that Tigbur - Temporary Professional Personnel has a conservative balance sheet, and could probably eliminate its debt without much difficulty.

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). 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).

While Tigbur - Temporary Professional Personnel's low debt to EBITDA ratio of 0.89 suggests only modest use of debt, the fact that EBIT only covered the interest expense by 6.0 times last year does give us pause. But the interest payments are certainly sufficient to have us thinking about how affordable its debt is. Importantly, Tigbur - Temporary Professional Personnel grew its EBIT by 36% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is Tigbur - Temporary Professional Personnel'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. During the last three years, Tigbur - Temporary Professional Personnel produced sturdy free cash flow equating to 69% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Our View

Tigbur - Temporary Professional Personnel's EBIT growth rate suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And the good news does not stop there, as its conversion of EBIT to free cash flow also supports that impression! Considering this range of factors, it seems to us that Tigbur - Temporary Professional Personnel is quite prudent with its debt, and the risks seem well managed. So the balance sheet looks pretty healthy, to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for Tigbur - Temporary Professional Personnel (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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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