Rock star Growth Puts TWL Holdings Berhad (KLSE:TWL) In A Position To Use Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. Importantly, TWL Holdings Berhad (KLSE:TWL) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for TWL Holdings Berhad

What Is TWL Holdings Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 TWL Holdings Berhad had RM10.9m of debt, an increase on RM10.5m, over one year. However, it does have RM72.9m in cash offsetting this, leading to net cash of RM62.0m.

A Look At TWL Holdings Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that TWL Holdings Berhad had liabilities of RM7.58m due within 12 months and liabilities of RM9.68m due beyond that. Offsetting these obligations, it had cash of RM72.9m as well as receivables valued at RM69.0m due within 12 months. So it actually has RM124.6m more liquid assets than total liabilities.

This surplus liquidity suggests that TWL Holdings Berhad's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, TWL Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since TWL 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.

Over 12 months, TWL Holdings Berhad reported revenue of RM35m, which is a gain of 320%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is TWL Holdings Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year TWL Holdings Berhad had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of RM26m and booked a RM18m accounting loss. Given it only has net cash of RM62.0m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, TWL Holdings Berhad's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. For example, we've discovered 4 warning signs for TWL Holdings Berhad (3 make us uncomfortable!) 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.

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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.