AMOS Group (SGX:49B) Is Carrying A Fair Bit Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, AMOS Group Limited (SGX:49B) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for AMOS Group

How Much Debt Does AMOS Group Carry?

You can click the graphic below for the historical numbers, but it shows that AMOS Group had S$23.6m of debt in March 2022, down from S$30.3m, one year before. On the flip side, it has S$7.28m in cash leading to net debt of about S$16.3m.

A Look At AMOS Group's Liabilities

Zooming in on the latest balance sheet data, we can see that AMOS Group had liabilities of S$35.8m due within 12 months and liabilities of S$17.8m due beyond that. Offsetting these obligations, it had cash of S$7.28m as well as receivables valued at S$31.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by S$15.2m.

This deficit isn't so bad because AMOS Group is worth S$28.9m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since AMOS Group 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 AMOS Group had a loss before interest and tax, and actually shrunk its revenue by 8.5%, to S$99m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months AMOS Group produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping S$10m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through S$5.8m of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for AMOS Group (of which 1 is a bit concerning!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.