Does Intraco (SGX:I06) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 can see that Intraco Limited (SGX:I06) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Intraco

How Much Debt Does Intraco Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Intraco had S$13.6m of debt, an increase on S$7.38m, over one year. However, it does have S$55.7m in cash offsetting this, leading to net cash of S$42.2m.

A Look At Intraco's Liabilities

We can see from the most recent balance sheet that Intraco had liabilities of S$31.4m falling due within a year, and liabilities of S$1.39m due beyond that. Offsetting this, it had S$55.7m in cash and S$15.8m in receivables that were due within 12 months. So it can boast S$38.8m more liquid assets than total liabilities.

This surplus strongly suggests that Intraco has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Intraco has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Intraco 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, Intraco saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

So How Risky Is Intraco?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Intraco had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through S$3.5m of cash and made a loss of S$13m. Given it only has net cash of S$42.2m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. To that end, you should learn about the 2 warning signs we've spotted with Intraco (including 1 which is significant) .

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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