Is Intraco (SGX:I06) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Intraco Limited (SGX:I06) does carry debt. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Intraco

What Is Intraco's Net Debt?

The image below, which you can click on for greater detail, shows that Intraco had debt of S$9.79m at the end of December 2022, a reduction from S$12.2m over a year. But on the other hand it also has S$37.7m in cash, leading to a S$27.9m net cash position.

How Healthy Is Intraco's Balance Sheet?

The latest balance sheet data shows that Intraco had liabilities of S$20.7m due within a year, and liabilities of S$1.09m falling due after that. Offsetting this, it had S$37.7m in cash and S$24.1m in receivables that were due within 12 months. So it actually has S$40.0m 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). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Intraco boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Intraco will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Intraco made a loss at the EBIT level, and saw its revenue drop to S$193m, which is a fall of 5.4%. We would much prefer see growth.

So How Risky Is Intraco?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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$5.1m of cash and made a loss of S$1.3m. Given it only has net cash of S$27.9m, 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. 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. For example, we've discovered 3 warning signs for Intraco (2 can't be ignored!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.