Is ASTI Holdings (SGX:575) 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 can see that ASTI Holdings Limited (SGX:575) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out 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 December 2020 ASTI Holdings had S$5.84m of debt, an increase on S$4.69m, over one year. However, it does have S$28.9m in cash offsetting this, leading to net cash of S$23.1m.

A Look At ASTI Holdings' Liabilities

We can see from the most recent balance sheet that ASTI Holdings had liabilities of S$23.8m falling due within a year, and liabilities of S$4.12m due beyond that. Offsetting this, it had S$28.9m in cash and S$23.8m in receivables that were due within 12 months. So it actually has S$24.7m more liquid assets than total liabilities.

This excess liquidity is a great indication that ASTI Holdings' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, ASTI Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since ASTI 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.

In the last year ASTI Holdings had a loss before interest and tax, and actually shrunk its revenue by 14%, to S$57m. That's not what we would hope to see.

So How Risky Is ASTI Holdings?

Although ASTI Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of S$1.6m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. There's no doubt the next few years will be crucial to how the business matures. 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. For example, we've discovered 2 warning signs for ASTI Holdings that you should be aware of before investing here.

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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