SIA Engineering (SGX:S59) Has A Rock Solid Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, SIA Engineering Company Limited (SGX:S59) does carry debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is SIA Engineering's Debt?

The image below, which you can click on for greater detail, shows that SIA Engineering had debt of S$85.2m at the end of March 2025, a reduction from S$110.4m over a year. However, it does have S$663.4m in cash offsetting this, leading to net cash of S$578.2m.

How Healthy Is SIA Engineering's Balance Sheet?

According to the last reported balance sheet, SIA Engineering had liabilities of S$337.2m due within 12 months, and liabilities of S$62.6m due beyond 12 months. Offsetting these obligations, it had cash of S$663.4m as well as receivables valued at S$238.3m due within 12 months. So it can boast S$501.9m more liquid assets than total liabilities.

This surplus suggests that SIA Engineering has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 706% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While SIA Engineering 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 two years, SIA Engineering actually produced more free cash flow than EBIT. 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$578.2m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 540% of that EBIT to free cash flow, bringing in S$103m. The bottom line is that we do not find SIA Engineering's debt levels at all concerning. 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 example - SIA Engineering has 1 warning sign we think 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.