Is Beng Kuang Marine (SGX:BEZ) Weighed On By Its Debt Load?

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.' 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 can see that Beng Kuang Marine Limited (SGX:BEZ) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Beng Kuang Marine

How Much Debt Does Beng Kuang Marine Carry?

As you can see below, Beng Kuang Marine had S$20.5m of debt at December 2022, down from S$24.4m a year prior. However, it does have S$7.67m in cash offsetting this, leading to net debt of about S$12.9m.

How Healthy Is Beng Kuang Marine's Balance Sheet?

We can see from the most recent balance sheet that Beng Kuang Marine had liabilities of S$47.4m falling due within a year, and liabilities of S$5.00m due beyond that. Offsetting this, it had S$7.67m in cash and S$23.5m in receivables that were due within 12 months. So its liabilities total S$21.2m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the S$7.77m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Beng Kuang Marine would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Beng Kuang Marine'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 Beng Kuang Marine wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to S$59m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Beng Kuang Marine produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable S$1.8m 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. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of S$5.2m in the last year. So while it's not wise to assume the company will fail, we do think it's risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example Beng Kuang Marine has 3 warning signs (and 2 which can't be ignored) we think 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.