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Does Zero-Debt Make Totally plc (AIM:TLY) A Financially Strong Company?

Brandie Wetzel

Totally plc (AIM:TLY), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is TLY will have to follow strict debt obligations which will reduce its financial flexibility. While TLY has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I recommend you look at the following hurdles to assess TLY’s financial health. Check out our latest analysis for Totally

Does TLY’s growth rate justify its decision for financial flexibility over lower cost of capital?

Debt capital generally has lower cost of capital compared to equity funding. But the downside of having debt in a company’s balance sheet is the debtholder’s higher claim on its assets in the case of liquidation, as well as stricter capital management requirements. The lack of debt on TLY’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if TLY is a high-growth company. TLY’s revenue growth over the past year was an impressively high triple-digit rate, so it is acceptable that the company is opting for a zero-debt capital structure currently as it may need to raise debt to fuel expansion in the future.

AIM:TLY Historical Debt Nov 23rd 17

Does TLY’s liquid assets cover its short-term commitments?

At the current liabilities level of £3M liabilities, it seems that the business has been able to meet these commitments with a current assets level of £3M, leading to a 1.16x current account ratio. Generally, for healthcare providers and services companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Next Steps:

Are you a shareholder? TLY is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Moving forward, TLY’s financial situation may change. I recommend researching market expectations for TLY’s future growth.

Are you a potential investor? Totally is a fast-growing company, making financial flexibility a valuable option for the company. In addition, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. In order to build your conviction in the stock, you need to also examine TLY’s track record. As a following step, you should take a look at TLY’s past performance to figure out TLY’s financial health position.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.