Tiger Synergy Berhad (KLSE:TIGER) Is Making Moderate Use 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 Tiger Synergy Berhad (KLSE:TIGER) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Tiger Synergy Berhad

What Is Tiger Synergy Berhad's Debt?

As you can see below, at the end of December 2020, Tiger Synergy Berhad had RM10.4m of debt, up from RM8.68m a year ago. Click the image for more detail. However, because it has a cash reserve of RM473.0k, its net debt is less, at about RM9.88m.

How Healthy Is Tiger Synergy Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tiger Synergy Berhad had liabilities of RM13.0m due within 12 months and liabilities of RM476.0k due beyond that. Offsetting these obligations, it had cash of RM473.0k as well as receivables valued at RM43.6m due within 12 months. So it actually has RM30.5m more liquid assets than total liabilities.

This surplus liquidity suggests that Tiger Synergy 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. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Tiger Synergy 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, Tiger Synergy Berhad made a loss at the EBIT level, and saw its revenue drop to RM1.3m, which is a fall of 88%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Tiger Synergy Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost RM5.9m at the EBIT level. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. This one is a bit too risky for our liking. 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. To that end, you should learn about the 5 warning signs we've spotted with Tiger Synergy Berhad (including 3 which are a bit unpleasant) .

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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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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