These 4 Measures Indicate That TIME dotCom Berhad (KLSE:TIMECOM) Is Using Debt Reasonably Well

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, TIME dotCom Berhad (KLSE:TIMECOM) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for TIME dotCom Berhad

What Is TIME dotCom Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that TIME dotCom Berhad had RM6.79m of debt in March 2024, down from RM220.5m, one year before. However, its balance sheet shows it holds RM1.31b in cash, so it actually has RM1.30b net cash.

How Healthy Is TIME dotCom Berhad's Balance Sheet?

According to the last reported balance sheet, TIME dotCom Berhad had liabilities of RM547.2m due within 12 months, and liabilities of RM618.6m due beyond 12 months. Offsetting these obligations, it had cash of RM1.31b as well as receivables valued at RM559.0m due within 12 months. So it actually has RM700.6m more liquid assets than total liabilities.

This surplus suggests that TIME dotCom Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, TIME dotCom Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

But the bad news is that TIME dotCom Berhad has seen its EBIT plunge 15% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine TIME dotCom Berhad's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. TIME dotCom Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, TIME dotCom Berhad recorded free cash flow worth a fulsome 80% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case TIME dotCom Berhad has RM1.30b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 80% of that EBIT to free cash flow, bringing in RM431m. So is TIME dotCom Berhad's debt a risk? It doesn't seem so to us. 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. Case in point: We've spotted 2 warning signs for TIME dotCom Berhad you should be aware of.

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. 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.

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