Is Advanced Holdings (SGX:BLZ) 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 note that Advanced Holdings Ltd. (SGX:BLZ) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Advanced Holdings

How Much Debt Does Advanced Holdings Carry?

As you can see below, at the end of December 2023, Advanced Holdings had S$5.61m of debt, up from S$3.02m a year ago. Click the image for more detail. However, its balance sheet shows it holds S$31.0m in cash, so it actually has S$25.3m net cash.

A Look At Advanced Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Advanced Holdings had liabilities of S$5.20m due within 12 months and liabilities of S$4.38m due beyond that. Offsetting this, it had S$31.0m in cash and S$3.48m in receivables that were due within 12 months. So it can boast S$24.9m more liquid assets than total liabilities.

This surplus strongly suggests that Advanced Holdings has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Advanced Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Advanced Holdings will need earnings to service that debt. 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.

Over 12 months, Advanced Holdings made a loss at the EBIT level, and saw its revenue drop to S$8.4m, which is a fall of 37%. That makes us nervous, to say the least.

So How Risky Is Advanced Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Advanced Holdings lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through S$5.2m of cash and made a loss of S$3.6m. While this does make the company a bit risky, it's important to remember it has net cash of S$25.3m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Advanced Holdings (1 can't be ignored) 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. 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.