Does Beng Kuang Marine (SGX:BEZ) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Beng Kuang Marine Limited (SGX:BEZ) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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.

See our latest analysis for Beng Kuang Marine

How Much Debt Does Beng Kuang Marine Carry?

The image below, which you can click on for greater detail, shows that Beng Kuang Marine had debt of S$24.5m at the end of December 2020, a reduction from S$27.9m over a year. However, it does have S$4.37m in cash offsetting this, leading to net debt of about S$20.1m.

A Look At Beng Kuang Marine's Liabilities

Zooming in on the latest balance sheet data, we can see that Beng Kuang Marine had liabilities of S$50.7m due within 12 months and liabilities of S$10.6m due beyond that. Offsetting this, it had S$4.37m in cash and S$28.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by S$28.2m.

This deficit casts a shadow over the S$6.48m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Beng Kuang Marine would probably need a major re-capitalization if its creditors were to demand repayment. 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 Beng Kuang Marine 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.

In the last year Beng Kuang Marine had a loss before interest and tax, and actually shrunk its revenue by 27%, to S$43m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Beng Kuang Marine's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable S$12m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it lost S$15m in just last twelve months, and it doesn't have much by way of liquid assets. So while it's not wise to assume the company will fail, we do think it's 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 Beng Kuang Marine you should be aware of.

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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