Vicplas International (SGX:569) Is Making Moderate Use 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Vicplas International Ltd (SGX:569) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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 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 think about a company's use of debt, we first look at cash and debt together.

What Is Vicplas International's Debt?

You can click the graphic below for the historical numbers, but it shows that as of January 2025 Vicplas International had S$25.5m of debt, an increase on S$16.4m, over one year. However, because it has a cash reserve of S$6.89m, its net debt is less, at about S$18.6m.

A Look At Vicplas International's Liabilities

Zooming in on the latest balance sheet data, we can see that Vicplas International had liabilities of S$45.8m due within 12 months and liabilities of S$14.6m due beyond that. Offsetting these obligations, it had cash of S$6.89m as well as receivables valued at S$44.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by S$9.32m.

While this might seem like a lot, it is not so bad since Vicplas International has a market capitalization of S$42.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Vicplas International's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Vicplas International

In the last year Vicplas International had a loss before interest and tax, and actually shrunk its revenue by 8.7%, to S$109m. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Vicplas International produced an earnings before interest and tax (EBIT) loss. Indeed, it lost S$712k at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through S$4.2m of cash over the last year. So suffice it to say we consider the stock very risky. 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. To that end, you should learn about the 2 warning signs we've spotted with Vicplas International (including 1 which can't be ignored) .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.