Does CDW Holding (SGX:BXE) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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. Importantly, CDW Holding Limited (SGX:BXE) does carry debt. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for CDW Holding

How Much Debt Does CDW Holding Carry?

As you can see below, at the end of December 2020, CDW Holding had US$13.3m of debt, up from US$9.49m a year ago. Click the image for more detail. However, it does have US$33.0m in cash offsetting this, leading to net cash of US$19.7m.

A Look At CDW Holding's Liabilities

According to the last reported balance sheet, CDW Holding had liabilities of US$44.5m due within 12 months, and liabilities of US$6.29m due beyond 12 months. On the other hand, it had cash of US$33.0m and US$41.8m worth of receivables due within a year. So it actually has US$24.1m more liquid assets than total liabilities.

This excess liquidity is a great indication that CDW Holding's balance sheet is almost as strong as Fort Knox. 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 CDW Holding has more cash than debt is arguably a good indication that it can manage its debt safely.

It was also good to see that despite losing money on the EBIT line last year, CDW Holding turned things around in the last 12 months, delivering and EBIT of US$3.9m. When analysing debt levels, the balance sheet is the obvious place to start. But it is CDW Holding'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. CDW Holding may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, CDW Holding recorded free cash flow worth a fulsome 96% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing up

While it is always sensible to investigate a company's debt, in this case CDW Holding has US$19.7m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$3.8m, being 96% of its EBIT. So is CDW Holding's debt a risk? It doesn't seem so to us. 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. Be aware that CDW Holding is showing 4 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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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