Does Genting Singapore (SGX:G13) 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. As with many other companies Genting Singapore Limited (SGX:G13) makes use of debt. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Genting Singapore

What Is Genting Singapore's Debt?

You can click the graphic below for the historical numbers, but it shows that Genting Singapore had S$237.2m of debt in December 2021, down from S$256.0m, one year before. But it also has S$3.34b in cash to offset that, meaning it has S$3.10b net cash.

How Healthy Is Genting Singapore's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Genting Singapore had liabilities of S$674.2m due within 12 months and liabilities of S$222.6m due beyond that. Offsetting these obligations, it had cash of S$3.34b as well as receivables valued at S$60.9m due within 12 months. So it can boast S$2.50b more liquid assets than total liabilities.

This excess liquidity suggests that Genting Singapore is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Genting Singapore has more cash than debt is arguably a good indication that it can manage its debt safely.

Even more impressive was the fact that Genting Singapore grew its EBIT by 124% over twelve months. That boost will make it even easier to pay down debt going forward. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Genting Singapore can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Genting Singapore may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, Genting Singapore recorded free cash flow of 40% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Genting Singapore has net cash of S$3.10b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 124% over the last year. So we don't think Genting Singapore's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Genting Singapore's earnings per share history for free.

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.