VibroPower (SGX:BJD) Is Making Moderate Use Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that VibroPower Corporation Limited (SGX:BJD) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for VibroPower

How Much Debt Does VibroPower Carry?

You can click the graphic below for the historical numbers, but it shows that VibroPower had S$5.96m of debt in March 2022, down from S$7.24m, one year before. However, it also had S$915.0k in cash, and so its net debt is S$5.04m.

A Look At VibroPower's Liabilities

Zooming in on the latest balance sheet data, we can see that VibroPower had liabilities of S$7.65m due within 12 months and liabilities of S$4.30m due beyond that. Offsetting this, it had S$915.0k in cash and S$13.0m in receivables that were due within 12 months. So it can boast S$1.91m more liquid assets than total liabilities.

This surplus liquidity suggests that VibroPower's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. The balance sheet is clearly the area to focus on when you are analysing debt. But it is VibroPower'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.

In the last year VibroPower had a loss before interest and tax, and actually shrunk its revenue by 14%, to S$12m. We would much prefer see growth.

Caveat Emptor

While VibroPower's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping S$2.2m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. 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. For example - VibroPower has 4 warning signs we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.