Is AMOS Group (SGX:49B) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. As with many other companies AMOS Group Limited (SGX:49B) 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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?

The image below, which you can click on for greater detail, shows that AMOS Group had debt of S$17.4m at the end of September 2023, a reduction from S$21.4m over a year. However, it does have S$8.61m in cash offsetting this, leading to net debt of about S$8.84m.

How Strong Is AMOS Group's Balance Sheet?

We can see from the most recent balance sheet that AMOS Group had liabilities of S$39.9m falling due within a year, and liabilities of S$9.76m due beyond that. On the other hand, it had cash of S$8.61m and S$23.6m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by S$17.4m.

The deficiency here weighs heavily on the S$9.79m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, AMOS Group would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is AMOS Group'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 AMOS Group had a loss before interest and tax, and actually shrunk its revenue by 6.9%, to S$92m. We would much prefer see growth.

Caveat Emptor

Importantly, AMOS Group had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping S$7.6m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of S$11m. In the meantime, we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for AMOS Group you should be aware of, and 2 of them are concerning.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.