Is Broadway Industrial Group (SGX:B69) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Broadway Industrial Group Limited (SGX:B69) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Broadway Industrial Group

What Is Broadway Industrial Group's Debt?

As you can see below, Broadway Industrial Group had S$3.91m of debt at June 2023, down from S$5.91m a year prior. But it also has S$27.4m in cash to offset that, meaning it has S$23.4m net cash.

How Strong Is Broadway Industrial Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Broadway Industrial Group had liabilities of S$64.8m due within 12 months and liabilities of S$8.83m due beyond that. On the other hand, it had cash of S$27.4m and S$40.9m worth of receivables due within a year. So it has liabilities totalling S$5.34m more than its cash and near-term receivables, combined.

Given Broadway Industrial Group has a market capitalization of S$36.8m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Broadway Industrial Group boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Broadway Industrial Group'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.

In the last year Broadway Industrial Group had a loss before interest and tax, and actually shrunk its revenue by 49%, to S$250m. That makes us nervous, to say the least.

So How Risky Is Broadway Industrial Group?

Although Broadway Industrial Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of S$2.8m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. For example Broadway Industrial Group has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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. 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.