Legendary fund manager Li Lu (who Charlie Munger supported) once said, “The biggest risk in investing is not price volatility, but the possibility that you will suffer a permanent loss of capital. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Like many other companies ASTI Holdings Limited (SGX: 575) uses debt. But the real question is whether this debt makes the business risky.
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. 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 has to raise new equity at low cost, thereby constantly diluting shareholders. Of course, many companies use debt to finance their growth without negative consequences. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
See our latest analysis for ASTI Holdings
How much debt is ASTI Holdings?
You can click on the graph below for historical figures, but it shows that as of December 2020, ASTI Holdings was in debt of S $ 5.84 million, an increase from S $ 4.69 million. , over one year. However, he has S $ 28.9 million in return for this situation, leading to a net cash position of S $ 23.1 million.
A look at the liabilities of ASTI Holdings
Zooming in on the latest balance sheet data, we can see that ASTI Holdings had liabilities of S $ 23.1 million due within 12 months and S $ 4.11 million liabilities beyond. On the other hand, it had S $ 28.9 million in cash and S $ 23.1 million in receivables due within one year. So he actually has S $ 24.8 million After liquid assets as total liabilities.
This excess liquidity suggests that ASTI Holdings’ balance sheet could take a hit just as the head of Homer Simpson can take a hit. With this in mind, one could postulate that its track record means that the company is able to cope with some adversity. Put simply, the fact that ASTI Holdings has more liquidity than debt is arguably a good indication that it can safely manage its debt. When analyzing debt levels, the balance sheet is the obvious starting point. But you can’t look at debt in isolation; since ASTI Holdings will need income to repay this debt. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
In the past year, ASTI Holdings recorded a loss before interest and taxes and actually reduced its revenue by 13%, to S $ 57 million. This is not what we hope to see.
So how risky is ASTI Holdings?
Although ASTI Holdings recorded a loss of earnings before interest and taxes (EBIT) in the last twelve months, it achieved a statutory profit of S $ 2.1 million. So, considering that it has net cash, as well as statutory profit, the security is probably not as risky as it looks, at least in the short term. There is no doubt that the next few years will be crucial for the maturation of the company. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. We have identified 3 warning signs with ASTI Holdings, and understanding them should be part of your investment process.
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page. free list of growing companies that have net cash on the balance sheet.
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