TIME dotCom Berhad (KLSE:TIMECOM) Could Easily Take On More Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that TIME dotCom Berhad (KLSE:TIMECOM) 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. 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 Net Debt?

As you can see below, at the end of March 2023, TIME dotCom Berhad had RM220.5m of debt, up from RM124.8m a year ago. Click the image for more detail. But it also has RM461.0m in cash to offset that, meaning it has RM240.5m net cash.

How Healthy Is TIME dotCom Berhad's Balance Sheet?

According to the last reported balance sheet, TIME dotCom Berhad had liabilities of RM759.6m due within 12 months, and liabilities of RM531.3m due beyond 12 months. On the other hand, it had cash of RM461.0m and RM618.3m worth of receivables due within a year. So it has liabilities totalling RM211.5m more than its cash and near-term receivables, combined.

Of course, TIME dotCom Berhad has a market capitalization of RM9.54b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, TIME dotCom Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely.

Also good is that TIME dotCom Berhad grew its EBIT at 14% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if TIME dotCom Berhad can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs 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 most recent three years, TIME dotCom Berhad recorded free cash flow worth 76% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that TIME dotCom Berhad has RM240.5m in net cash. The cherry on top was that in converted 76% of that EBIT to free cash flow, bringing in RM281m. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for TIME dotCom Berhad you should know about.

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.