Health Check: How Prudently Does Procurri (SGX:BVQ) Use Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Procurri Corporation Limited (SGX:BVQ) makes use of debt. But should shareholders be worried about its use of debt?

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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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Procurri's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Procurri had S$17.4m of debt, an increase on S$13.3m, over one year. However, it does have S$34.0m in cash offsetting this, leading to net cash of S$16.6m.

A Look At Procurri's Liabilities

We can see from the most recent balance sheet that Procurri had liabilities of S$60.5m falling due within a year, and liabilities of S$14.2m due beyond that. Offsetting these obligations, it had cash of S$34.0m as well as receivables valued at S$29.5m due within 12 months. So its liabilities total S$11.2m more than the combination of its cash and short-term receivables.

Given Procurri has a market capitalization of S$98.6m, it's hard to believe these liabilities pose much 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! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Procurri 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.

See our latest analysis for Procurri

Over 12 months, Procurri made a loss at the EBIT level, and saw its revenue drop to S$191m, which is a fall of 3.0%. 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 booked a paper profit of S$402k. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Procurri you should be aware of, and 2 of them are potentially serious.

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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.