Is Soilbuild Construction Group (SGX:S7P) 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. We note that Soilbuild Construction Group Ltd. (SGX:S7P) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Soilbuild Construction Group

How Much Debt Does Soilbuild Construction Group Carry?

The image below, which you can click on for greater detail, shows that at June 2021 Soilbuild Construction Group had debt of S$92.4m, up from S$82.7m in one year. However, it does have S$12.5m in cash offsetting this, leading to net debt of about S$79.9m.

How Strong Is Soilbuild Construction Group's Balance Sheet?

We can see from the most recent balance sheet that Soilbuild Construction Group had liabilities of S$125.4m falling due within a year, and liabilities of S$74.1m due beyond that. Offsetting this, it had S$12.5m in cash and S$77.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by S$110.0m.

This deficit casts a shadow over the S$48.8m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Soilbuild Construction Group would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Soilbuild Construction Group 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.

In the last year Soilbuild Construction Group wasn't profitable at an EBIT level, but managed to grow its revenue by 6.7%, to S$209m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Soilbuild Construction Group had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable S$17m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of S$14m over the last twelve months. So suffice it to say 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. Case in point: We've spotted 3 warning signs for Soilbuild Construction Group you should be aware of, and 2 of them can't be ignored.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.
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