Despite Lacking Profits ISP Global (HKG:8487) Seems To Be On Top Of Its Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies ISP Global Limited (HKG:8487) makes use of debt. 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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for ISP Global

How Much Debt Does ISP Global Carry?

As you can see below, at the end of December 2021, ISP Global had S$3.72m of debt, up from S$1.32m a year ago. Click the image for more detail. However, its balance sheet shows it holds S$12.1m in cash, so it actually has S$8.38m net cash.

How Strong Is ISP Global's Balance Sheet?

The latest balance sheet data shows that ISP Global had liabilities of S$6.35m due within a year, and liabilities of S$2.32m falling due after that. On the other hand, it had cash of S$12.1m and S$7.90m worth of receivables due within a year. So it can boast S$11.3m more liquid assets than total liabilities.

This luscious liquidity implies that ISP Global's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that ISP Global has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is ISP Global'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.

Over 12 months, ISP Global reported revenue of S$19m, which is a gain of 102%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is ISP Global?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months ISP Global lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through S$8.3m of cash and made a loss of S$1.8m. With only S$8.38m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, ISP Global's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with ISP Global (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.