Does CSC Holdings (SGX:C06) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We note that CSC Holdings Limited (SGX:C06) does have debt on its balance sheet. But is this debt a concern to shareholders?

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 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out the opportunities and risks within the SG Construction industry.

What Is CSC Holdings's Debt?

As you can see below, CSC Holdings had S$64.2m of debt, at September 2022, which is about the same as the year before. You can click the chart for greater detail. However, it does have S$19.9m in cash offsetting this, leading to net debt of about S$44.2m.

How Strong Is CSC Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CSC Holdings had liabilities of S$154.1m due within 12 months and liabilities of S$72.6m due beyond that. On the other hand, it had cash of S$19.9m and S$113.9m worth of receivables due within a year. So its liabilities total S$92.9m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the S$38.7m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, CSC Holdings would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is CSC Holdings'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.

In the last year CSC Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 6.1%, to S$264m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months CSC Holdings produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping S$18m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of S$16m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. 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. For example - CSC Holdings has 2 warning signs we think you should be aware of.

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.

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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.