Is Synertec (ASX:SOP) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Synertec Corporation Limited (ASX:SOP) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Synertec's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Synertec had debt of AU$3.00m, up from AU$581.7k in one year. But on the other hand it also has AU$3.74m in cash, leading to a AU$736.4k net cash position.

How Strong Is Synertec's Balance Sheet?

We can see from the most recent balance sheet that Synertec had liabilities of AU$10.6m falling due within a year, and liabilities of AU$1.51m due beyond that. Offsetting these obligations, it had cash of AU$3.74m as well as receivables valued at AU$3.90m due within 12 months. So it has liabilities totalling AU$4.43m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Synertec has a market capitalization of AU$14.5m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Synertec boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Synertec'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.

View our latest analysis for Synertec

In the last year Synertec had a loss before interest and tax, and actually shrunk its revenue by 6.1%, to AU$18m. We would much prefer see growth.

So How Risky Is Synertec?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Synertec had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through AU$5.3m of cash and made a loss of AU$7.6m. Given it only has net cash of AU$736.4k, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Synertec you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.