Is TWL Holdings Berhad (KLSE:TWL) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies TWL Holdings Berhad (KLSE:TWL) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for TWL Holdings Berhad

How Much Debt Does TWL Holdings Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 TWL Holdings Berhad had RM16.6m of debt, an increase on RM10.9m, over one year. But on the other hand it also has RM96.3m in cash, leading to a RM79.7m net cash position.

How Strong Is TWL Holdings Berhad's Balance Sheet?

According to the last reported balance sheet, TWL Holdings Berhad had liabilities of RM4.86m due within 12 months, and liabilities of RM16.2m due beyond 12 months. Offsetting these obligations, it had cash of RM96.3m as well as receivables valued at RM75.5m due within 12 months. So it actually has RM150.8m more liquid assets than total liabilities.

This surplus strongly suggests that TWL Holdings Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that TWL Holdings Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is TWL Holdings Berhad'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.

In the last year TWL Holdings Berhad had a loss before interest and tax, and actually shrunk its revenue by 27%, to RM26m. To be frank that doesn't bode well.

So How Risky Is TWL Holdings Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that TWL Holdings Berhad had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through RM63m of cash and made a loss of RM3.2m. With only RM79.7m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 5 warning signs for TWL Holdings Berhad (3 are significant!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.