Does ASTI Holdings (SGX:575) Have A Healthy Balance Sheet?

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. We note that ASTI Holdings Limited (SGX:575) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for ASTI Holdings

What Is ASTI Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2020 ASTI Holdings had S$5.02m of debt, an increase on S$3.80m, over one year. However, its balance sheet shows it holds S$29.1m in cash, so it actually has S$24.1m net cash.

How Healthy Is ASTI Holdings's Balance Sheet?

According to the last reported balance sheet, ASTI Holdings had liabilities of S$19.5m due within 12 months, and liabilities of S$4.91m due beyond 12 months. Offsetting this, it had S$29.1m in cash and S$17.2m in receivables that were due within 12 months. So it can boast S$21.9m more liquid assets than total liabilities.

This surplus liquidity suggests that ASTI Holdings's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet is as strong as beautiful a rare rhino. Simply put, the fact that ASTI Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is ASTI Holdings'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 ASTI Holdings had a loss before interest and tax, and actually shrunk its revenue by 17%, to S$58m. That's not what we would hope to see.

So How Risky Is ASTI Holdings?

While ASTI Holdings lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of S$1.2m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. The next few years will be important as the business matures. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for ASTI Holdings 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. 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.
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