Is Tashin Holdings Berhad (KLSE:TASHIN) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Tashin Holdings Berhad (KLSE:TASHIN) does use debt in its business. But is this debt a concern to shareholders?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Tashin Holdings Berhad

What Is Tashin Holdings Berhad's Debt?

As you can see below, Tashin Holdings Berhad had RM18.9m of debt at September 2020, down from RM36.1m a year prior. But on the other hand it also has RM40.2m in cash, leading to a RM21.3m net cash position.

How Healthy Is Tashin Holdings Berhad's Balance Sheet?

We can see from the most recent balance sheet that Tashin Holdings Berhad had liabilities of RM28.7m falling due within a year, and liabilities of RM9.97m due beyond that. Offsetting these obligations, it had cash of RM40.2m as well as receivables valued at RM60.4m due within 12 months. So it actually has RM62.0m more liquid assets than total liabilities.

This surplus liquidity suggests that Tashin Holdings Berhad's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Tashin 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 Tashin Holdings Berhad 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.

In the last year Tashin Holdings Berhad had a loss before interest and tax, and actually shrunk its revenue by 6.1%, to RM229m. We would much prefer see growth.

So How Risky Is Tashin Holdings Berhad?

While Tashin Holdings Berhad lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of RM685k. So taking that on face value, and considering the cash, we don't think its very risky in the near term. There's no doubt the next few years will be crucial to how the business matures. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with Tashin Holdings Berhad (including 1 which makes us a bit uncomfortable) .

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.

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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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