Does T T J Holdings (SGX:K1Q) Have A Healthy Balance Sheet?

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 note that T T J Holdings Limited (SGX:K1Q) does have debt on its balance sheet. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for T T J Holdings

How Much Debt Does T T J Holdings Carry?

As you can see below, T T J Holdings had S$6.67m of debt at January 2021, down from S$7.31m a year prior. However, it does have S$28.7m in cash offsetting this, leading to net cash of S$22.0m.

A Look At T T J Holdings' Liabilities

The latest balance sheet data shows that T T J Holdings had liabilities of S$14.0m due within a year, and liabilities of S$14.8m falling due after that. On the other hand, it had cash of S$28.7m and S$52.6m worth of receivables due within a year. So it can boast S$52.5m more liquid assets than total liabilities.

This surplus strongly suggests that T T J Holdings has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, T T J Holdings 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 it is T T J Holdings's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year T T J Holdings had a loss before interest and tax, and actually shrunk its revenue by 31%, to S$58m. That makes us nervous, to say the least.

So How Risky Is T T J Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year T T J Holdings had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through S$3.6m of cash and made a loss of S$11m. Given it only has net cash of S$22.0m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. We've identified 3 warning signs with T T J Holdings (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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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