Does Seatrium (SGX:S51) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Seatrium Limited (SGX:S51) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Seatrium

How Much Debt Does Seatrium Carry?

The image below, which you can click on for greater detail, shows that at June 2023 Seatrium had debt of S$3.72b, up from S$3.13b in one year. On the flip side, it has S$2.33b in cash leading to net debt of about S$1.39b.

How Strong Is Seatrium's Balance Sheet?

We can see from the most recent balance sheet that Seatrium had liabilities of S$8.26b falling due within a year, and liabilities of S$2.57b due beyond that. Offsetting these obligations, it had cash of S$2.33b as well as receivables valued at S$3.93b due within 12 months. So its liabilities total S$4.57b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of S$6.96b, so it does suggest shareholders should keep an eye on Seatrium's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Seatrium's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Seatrium wasn't profitable at an EBIT level, but managed to grow its revenue by 77%, to S$3.7b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though Seatrium managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at S$268m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of S$383m. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Seatrium you should know about.

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. 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.