Tien Wah Press Holdings Berhad (KLSE:TIENWAH) Is Carrying A Fair Bit Of Debt

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. As with many other companies Tien Wah Press Holdings Berhad (KLSE:TIENWAH) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Tien Wah Press Holdings Berhad

What Is Tien Wah Press Holdings Berhad's Net Debt?

As you can see below, Tien Wah Press Holdings Berhad had RM97.7m of debt at September 2020, down from RM139.5m a year prior. However, it does have RM14.1m in cash offsetting this, leading to net debt of about RM83.6m.

How Strong Is Tien Wah Press Holdings Berhad's Balance Sheet?

According to the last reported balance sheet, Tien Wah Press Holdings Berhad had liabilities of RM83.3m due within 12 months, and liabilities of RM85.2m due beyond 12 months. Offsetting these obligations, it had cash of RM14.1m as well as receivables valued at RM90.1m due within 12 months. So it has liabilities totalling RM64.3m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Tien Wah Press Holdings Berhad has a market capitalization of RM131.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Tien Wah Press Holdings Berhad can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Tien Wah Press Holdings Berhad had a loss before interest and tax, and actually shrunk its revenue by 13%, to RM305m. We would much prefer see growth.

Caveat Emptor

Not only did Tien Wah Press Holdings Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost RM637k at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of RM14m. So in short it's a really risky stock. 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. For example, we've discovered 3 warning signs for Tien Wah Press Holdings Berhad (1 is a bit unpleasant!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.
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