Stock Analysis

Does XMH Holdings (SGX:BQF) Have A Healthy Balance Sheet?

SGX:BQF
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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies XMH Holdings Ltd. (SGX:BQF) makes use of debt. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for XMH Holdings

What Is XMH Holdings's Net Debt?

As you can see below, XMH Holdings had S$65.7m of debt, at October 2020, which is about the same as the year before. You can click the chart for greater detail. However, it does have S$8.33m in cash offsetting this, leading to net debt of about S$57.4m.

debt-equity-history-analysis
SGX:BQF Debt to Equity History March 29th 2021

A Look At XMH Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that XMH Holdings had liabilities of S$29.1m due within 12 months and liabilities of S$50.6m due beyond that. On the other hand, it had cash of S$8.33m and S$26.1m worth of receivables due within a year. So its liabilities total S$45.3m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the S$12.0m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, XMH Holdings would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since XMH Holdings will need earnings to service that debt. 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, XMH Holdings made a loss at the EBIT level, and saw its revenue drop to S$53m, which is a fall of 26%. That makes us nervous, to say the least.

Caveat Emptor

While XMH Holdings'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$2.9m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it vaporized S$3.2m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for XMH Holdings you should be aware of.

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. 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.
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About SGX:BQF

XMH Holdings

An investment holding company, provides diesel engine, propulsion, and power generating solutions for customers in the marine and industrial sectors in Singapore, Indonesia, Vietnam, and internationally.

Outstanding track record with flawless balance sheet.