Does Procurri (SGX:BVQ) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Procurri Corporation Limited (SGX:BVQ) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Procurri

What Is Procurri's Net Debt?

As you can see below, Procurri had S$17.0m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have S$33.5m in cash offsetting this, leading to net cash of S$16.5m.

How Strong Is Procurri's Balance Sheet?

According to the last reported balance sheet, Procurri had liabilities of S$62.9m due within 12 months, and liabilities of S$11.6m due beyond 12 months. On the other hand, it had cash of S$33.5m and S$34.5m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by S$6.58m.

Since publicly traded Procurri shares are worth a total of S$61.8m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Procurri boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Procurri'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 Procurri had a loss before interest and tax, and actually shrunk its revenue by 16%, to S$193m. We would much prefer see growth.

So How Risky Is Procurri?

While Procurri lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow S$2.9m. 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. 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. For instance, we've identified 3 warning signs for Procurri (2 are potentially serious) 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.