Is CSC Holdings (SGX:C06) Using Too Much Debt?

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.' 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. Importantly, CSC Holdings Limited (SGX:C06) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for CSC Holdings

How Much Debt Does CSC Holdings Carry?

As you can see below, at the end of September 2024, CSC Holdings had S$80.1m of debt, up from S$70.0m a year ago. Click the image for more detail. However, because it has a cash reserve of S$14.1m, its net debt is less, at about S$66.0m.

A Look At CSC Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that CSC Holdings had liabilities of S$224.0m due within 12 months and liabilities of S$56.5m due beyond that. On the other hand, it had cash of S$14.1m and S$176.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by S$89.8m.

This deficit casts a shadow over the S$31.5m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, CSC Holdings would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

Over 12 months, CSC Holdings reported revenue of S$313m, which is a gain of 7.0%, although it did not report any earnings before interest and tax. 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. Indeed, it lost a very considerable S$8.6m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of S$15m in the last year. So we think this stock is quite risky. We'd prefer to pass. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with CSC Holdings (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.

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.