Is SIA Engineering (SGX:S59) A Risky Investment?

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. We can see that SIA Engineering Company Limited (SGX:S59) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does SIA Engineering Carry?

You can click the graphic below for the historical numbers, but it shows that SIA Engineering had S$4.69m of debt in March 2025, down from S$5.14m, one year before. But on the other hand it also has S$663.4m in cash, leading to a S$658.7m net cash position.

A Look At SIA Engineering's Liabilities

We can see from the most recent balance sheet that SIA Engineering had liabilities of S$337.2m falling due within a year, and liabilities of S$62.6m due beyond that. Offsetting this, it had S$663.4m in cash and S$238.3m in receivables that were due within 12 months. So it actually has S$501.9m more liquid assets than total liabilities.

This short term liquidity is a sign that SIA Engineering could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, SIA Engineering boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for SIA Engineering

Even more impressive was the fact that SIA Engineering grew its EBIT by 747% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine SIA Engineering'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. SIA Engineering may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, SIA Engineering actually produced more free cash flow than EBIT over the last two years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case SIA Engineering has S$658.7m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of S$103m, being 922% of its EBIT. When it comes to SIA Engineering's debt, we sufficiently relaxed that our mind turns to the jacuzzi. 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. Case in point: We've spotted 1 warning sign for SIA Engineering you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.