- Marine and Shipping
Is Shin Yang Shipping Corporation Berhad (KLSE:SYSCORP) Using Too Much Debt?
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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Shin Yang Shipping Corporation Berhad (KLSE:SYSCORP) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Shin Yang Shipping Corporation Berhad
What Is Shin Yang Shipping Corporation Berhad's Debt?
The image below, which you can click on for greater detail, shows that Shin Yang Shipping Corporation Berhad had debt of RM141.8m at the end of December 2022, a reduction from RM229.1m over a year. But on the other hand it also has RM345.8m in cash, leading to a RM204.0m net cash position.
How Healthy Is Shin Yang Shipping Corporation Berhad's Balance Sheet?
According to the last reported balance sheet, Shin Yang Shipping Corporation Berhad had liabilities of RM305.3m due within 12 months, and liabilities of RM88.3m due beyond 12 months. On the other hand, it had cash of RM345.8m and RM182.7m worth of receivables due within a year. So it can boast RM134.9m more liquid assets than total liabilities.
This surplus suggests that Shin Yang Shipping Corporation Berhad is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Shin Yang Shipping Corporation Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!
Even more impressive was the fact that Shin Yang Shipping Corporation Berhad grew its EBIT by 327% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But it is Shin Yang Shipping Corporation Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Shin Yang Shipping Corporation Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last two years, Shin Yang Shipping Corporation Berhad actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.
While it is always sensible to investigate a company's debt, in this case Shin Yang Shipping Corporation Berhad has RM204.0m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of RM243m, being 150% of its EBIT. The bottom line is that we do not find Shin Yang Shipping Corporation Berhad's debt levels at all concerning. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Shin Yang Shipping Corporation Berhad is showing 1 warning sign in our investment analysis , you should know about...
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
Valuation is complex, but we're helping make it simple.
Find out whether Shin Yang Shipping Corporation Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Shin Yang Shipping Corporation Berhad
Shin Yang Shipping Corporation Berhad, an investment holding company, provides shipping, shipbuilding, and ship repair services in Malaysia and internationally.
Flawless balance sheet with solid track record and pays a dividend.