Asia Pacific Wire & Cable (NASDAQ:APWC) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Asia Pacific Wire & Cable Corporation Limited (NASDAQ:APWC) does use debt in its business. 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. 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, 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.

Check out our latest analysis for Asia Pacific Wire & Cable

How Much Debt Does Asia Pacific Wire & Cable Carry?

As you can see below, Asia Pacific Wire & Cable had US$50.6m of debt at September 2022, down from US$65.4m a year prior. On the flip side, it has US$48.4m in cash leading to net debt of about US$2.17m.

A Look At Asia Pacific Wire & Cable's Liabilities

Zooming in on the latest balance sheet data, we can see that Asia Pacific Wire & Cable had liabilities of US$131.4m due within 12 months and liabilities of US$25.8m due beyond that. Offsetting these obligations, it had cash of US$48.4m as well as receivables valued at US$101.5m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$7.24m.

While this might seem like a lot, it is not so bad since Asia Pacific Wire & Cable has a market capitalization of US$29.2m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Asia Pacific Wire & Cable will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Asia Pacific Wire & Cable reported revenue of US$457m, which is a gain of 4.5%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Asia Pacific Wire & Cable had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$7.9m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$667k into a profit. In the meantime, we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Asia Pacific Wire & Cable you should be aware of, and 1 of them is a bit unpleasant.

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.