- Singapore
- /
- Professional Services
- /
- SGX:5MZ
Health Check: How Prudently Does Kingsmen Creatives (SGX:5MZ) Use 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.' 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. As with many other companies Kingsmen Creatives Ltd. (SGX:5MZ) makes use of debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for Kingsmen Creatives
How Much Debt Does Kingsmen Creatives Carry?
The image below, which you can click on for greater detail, shows that Kingsmen Creatives had debt of S$32.1m at the end of June 2020, a reduction from S$34.8m over a year. However, it does have S$74.9m in cash offsetting this, leading to net cash of S$42.8m.
How Healthy Is Kingsmen Creatives's Balance Sheet?
According to the last reported balance sheet, Kingsmen Creatives had liabilities of S$126.7m due within 12 months, and liabilities of S$27.5m due beyond 12 months. Offsetting this, it had S$74.9m in cash and S$95.7m in receivables that were due within 12 months. So it actually has S$16.3m more liquid assets than total liabilities.
This surplus liquidity suggests that Kingsmen Creatives's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this basis we think its balance sheet is strong like a sleek panther or even a proud lion. Succinctly put, Kingsmen Creatives boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Kingsmen Creatives'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.
In the last year Kingsmen Creatives had a loss before interest and tax, and actually shrunk its revenue by 18%, to S$316m. That's not what we would hope to see.
So How Risky Is Kingsmen Creatives?
Although Kingsmen Creatives had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of S$14m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. Case in point: We've spotted 2 warning signs for Kingsmen Creatives you should be aware of, and 1 of them shouldn'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.
When trading Kingsmen Creatives or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
Valuation is complex, but we're here to simplify it.
Discover if Kingsmen Creatives might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisThis 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
About SGX:5MZ
Kingsmen Creatives
An investment holding company, provides corporate marketing and related services in South Asia, North Asia, the Middle East, the United States, Canada, Europe, and internationally.
Flawless balance sheet and good value.