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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Broadway Industrial Group Limited (SGX:B69) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

View 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 on the other hand it also has S$27.4m in cash, leading to a S$23.4m net cash position.

How Strong Is Broadway Industrial Group's Balance Sheet?

We can see from the most recent balance sheet that Broadway Industrial Group had liabilities of S$64.8m falling due within a year, and liabilities of S$8.83m due beyond that. Offsetting these obligations, it had cash of S$27.4m as well as receivables valued at S$40.9m due within 12 months. So it has liabilities totalling S$5.34m more than its cash and near-term receivables, combined.

Of course, Broadway Industrial Group has a market capitalization of S$38.2m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 you can't view debt in total isolation; since Broadway Industrial Group 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 Broadway Industrial Group had a loss before interest and tax, and actually shrunk its revenue by 49%, to S$250m. To be frank that doesn't bode well.

So How Risky Is Broadway Industrial Group?

While Broadway Industrial Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow 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. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Broadway Industrial Group 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.