ComfortDelGro (SGX:C52) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 ComfortDelGro Corporation Limited (SGX:C52) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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.

See our latest analysis for ComfortDelGro

How Much Debt Does ComfortDelGro Carry?

The image below, which you can click on for greater detail, shows that at December 2023 ComfortDelGro had debt of S$350.3m, up from S$292.2m in one year. But it also has S$856.9m in cash to offset that, meaning it has S$506.6m net cash.

A Look At ComfortDelGro's Liabilities

According to the last reported balance sheet, ComfortDelGro had liabilities of S$1.09b due within 12 months, and liabilities of S$584.2m due beyond 12 months. Offsetting this, it had S$856.9m in cash and S$615.3m in receivables that were due within 12 months. So it has liabilities totalling S$203.6m more than its cash and near-term receivables, combined.

Since publicly traded ComfortDelGro shares are worth a total of S$3.03b, 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. While it does have liabilities worth noting, ComfortDelGro also has more cash than debt, so we're pretty confident it can manage its debt safely.

And we also note warmly that ComfortDelGro grew its EBIT by 14% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ComfortDelGro's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While ComfortDelGro has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, ComfortDelGro actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that ComfortDelGro has S$506.6m in net cash. The cherry on top was that in converted 121% of that EBIT to free cash flow, bringing in S$71m. So we don't think ComfortDelGro's use of debt is risky. 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. To that end, you should be aware of the 1 warning sign we've spotted with ComfortDelGro .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.