We believe Time Watch Investments (HKG: 2033) can manage its debt with ease
Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried “. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Like many other companies Time Watch Investments Limited (HKG: 2033) uses debt. But the most important question is: what risk does this debt create?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we look at debt levels, we first look at cash and debt levels together.
See our latest analysis for Time Watch Investments
What is the net debt of Time Watch Investments?
As you can see below, at the end of June 2021, Time Watch Investments was in debt of HK $ 47.8million, up from HK $ 7.75million a year ago. Click on the image for more details. However, his balance sheet shows that he holds HK $ 1.07 billion in cash, so he actually has net cash of HK $ 1.02 billion.
How strong is Time Watch Investments’ balance sheet?
The latest balance sheet data shows Time Watch Investments had a liability of HK $ 328.8 million maturing within one year, and a liability of HK $ 115.2 million maturing thereafter. In return, he had HK $ 1.07 billion in cash and HK $ 332.3 million in receivables due within 12 months. So he actually has HK $ 959.0million Following liquid assets as total liabilities.
This abundant liquidity means that Time Watch Investments’ balance sheet is as strong as a giant sequoia. From this point of view, lenders should feel as secure as the beloved of a black belt karate master. Put simply, the fact that Time Watch Investments has more cash than debt is arguably a good indication that it can safely manage its debt.
On top of that, Time Watch Investments has increased its EBIT by 66% over the past twelve months, and this growth will make it easier to process its debt. The balance sheet is clearly the area to focus on when analyzing debt. But it is the profits of Time Watch Investments that will influence the way the balance sheet is maintained in the future. So if you want to know more about its profits, it might be worth checking out this long term profit trend chart.
But our last consideration is also important, because a business cannot pay its debts with paper profits; he needs hard cash. Although Time Watch Investments has net cash on its balance sheet, it is still worth examining its ability to convert earnings before interest and taxes (EBIT) into free cash flow, to help us understand how fast it is. builds (or erodes) cash balance. Over the past three years, Time Watch Investments has recorded free cash flow of 68% of its EBIT, which is close to normal given that free cash flow excludes interest and taxes. This hard cash allows him to reduce his debt whenever he wants.
While we sympathize with investors who find debt worrying, you should keep in mind that Time Watch Investments has HK $ 1.02 billion in net cash, plus more liquid assets than liabilities. . And we liked the appearance of the 66% year-over-year EBIT growth from last year. Ultimately, we are not concerned about the debt of Time Watch Investments. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist off the balance sheet. We have identified 1 warning sign with Time Watch Investments, and understanding them should be part of your investing process.
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St does not have any position in the mentioned stocks.
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