Is ASTI Holdings (SGX:575) Weighed On By Its Debt Load?

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.' 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. As with many other companies ASTI Holdings Limited (SGX:575) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its 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 ASTI Holdings had S$3.71m of debt in December 2021, down from S$5.84m, one year before. But on the other hand it also has S$23.7m in cash, leading to a S$20.0m net cash position.

A Look At ASTI Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that ASTI Holdings had liabilities of S$25.3m due within 12 months and liabilities of S$2.35m due beyond that. Offsetting these obligations, it had cash of S$23.7m as well as receivables valued at S$24.0m due within 12 months. So it can boast S$20.1m more liquid assets than total liabilities.

This luscious liquidity implies that ASTI Holdings' balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that ASTI 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 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.

Over 12 months, ASTI Holdings made a loss at the EBIT level, and saw its revenue drop to S$54m, which is a fall of 4.8%. We would much prefer see growth.

So How Risky Is ASTI Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that ASTI Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through S$2.4m of cash and made a loss of S$7.0m. With only S$20.0m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for ASTI Holdings you should know about.

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.