Does Ban Leong Technologies (SGX:B26) Have A Healthy Balance Sheet?

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 Ban Leong Technologies Limited (SGX:B26) does use debt in its business. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Ban Leong Technologies

What Is Ban Leong Technologies's Net Debt?

As you can see below, at the end of September 2022, Ban Leong Technologies had S$3.94m of debt, up from S$2.53m a year ago. Click the image for more detail. But on the other hand it also has S$9.56m in cash, leading to a S$5.62m net cash position.

How Strong Is Ban Leong Technologies' Balance Sheet?

According to the last reported balance sheet, Ban Leong Technologies had liabilities of S$33.8m due within 12 months, and liabilities of S$660.3k due beyond 12 months. Offsetting these obligations, it had cash of S$9.56m as well as receivables valued at S$26.8m due within 12 months. So it can boast S$1.87m more liquid assets than total liabilities.

This short term liquidity is a sign that Ban Leong Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Ban Leong Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Ban Leong Technologies's EBIT dived 15%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But it is Ban Leong Technologies'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. Ban Leong Technologies 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. Looking at the most recent three years, Ban Leong Technologies recorded free cash flow of 44% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Ban Leong Technologies has S$5.62m in net cash and a decent-looking balance sheet. So we are not troubled with Ban Leong Technologies's debt use. 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. For instance, we've identified 3 warning signs for Ban Leong Technologies (1 is significant) you should be aware of.

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. 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.