Does Ta Win Holdings Berhad (KLSE:TAWIN) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Ta Win Holdings Berhad (KLSE:TAWIN) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Ta Win Holdings Berhad

What Is Ta Win Holdings Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Ta Win Holdings Berhad had RM86.9m of debt, an increase on RM79.2m, over one year. However, its balance sheet shows it holds RM142.9m in cash, so it actually has RM56.0m net cash.

How Healthy Is Ta Win Holdings Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ta Win Holdings Berhad had liabilities of RM122.1m due within 12 months and liabilities of RM13.4m due beyond that. Offsetting these obligations, it had cash of RM142.9m as well as receivables valued at RM80.7m due within 12 months. So it can boast RM88.1m more liquid assets than total liabilities.

This surplus suggests that Ta Win Holdings Berhad is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Ta Win Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Ta Win Holdings Berhad 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.

Over 12 months, Ta Win Holdings Berhad reported revenue of RM522m, which is a gain of 70%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Ta Win Holdings Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Ta Win Holdings Berhad had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through RM65m of cash and made a loss of RM6.3m. Given it only has net cash of RM56.0m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Ta Win Holdings Berhad may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Ta Win Holdings Berhad (of which 2 don't sit too well with us!) 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.