TIME dotCom Berhad (KLSE:TIMECOM) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that TIME dotCom Berhad (KLSE:TIMECOM) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See 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 as of March 2021 TIME dotCom Berhad had RM144.9m of debt, an increase on RM99.8m, over one year. But on the other hand it also has RM651.5m in cash, leading to a RM506.6m net cash position.

How Strong Is TIME dotCom Berhad's Balance Sheet?

The latest balance sheet data shows that TIME dotCom Berhad had liabilities of RM430.7m due within a year, and liabilities of RM572.9m falling due after that. Offsetting these obligations, it had cash of RM651.5m as well as receivables valued at RM543.3m due within 12 months. So it actually has RM191.1m 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!

Also good is that TIME dotCom Berhad grew its EBIT at 10% 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While TIME dotCom Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, TIME dotCom Berhad produced sturdy free cash flow equating to 74% of its EBIT, about what we'd expect. 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 investigate a company's debt, in this case TIME dotCom Berhad has RM506.6m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 74% of that EBIT to free cash flow, bringing in RM381m. So we don't think TIME dotCom Berhad's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in TIME dotCom Berhad, you may well want to click here to check an interactive graph of its earnings per share history.

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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