We Think Asia Pacific Wire & Cable (NASDAQ:APWC) Has A Fair Chunk Of Debt

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. We note that Asia Pacific Wire & Cable Corporation Limited (NASDAQ:APWC) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Asia Pacific Wire & Cable

What Is Asia Pacific Wire & Cable's Net Debt?

As you can see below, Asia Pacific Wire & Cable had US$55.9m of debt at June 2022, down from US$59.7m a year prior. However, because it has a cash reserve of US$45.0m, its net debt is less, at about US$10.8m.

A Look At Asia Pacific Wire & Cable's Liabilities

The latest balance sheet data shows that Asia Pacific Wire & Cable had liabilities of US$129.4m due within a year, and liabilities of US$26.5m falling due after that. On the other hand, it had cash of US$45.0m and US$110.9m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Asia Pacific Wire & Cable's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$33.8m company is short on cash, but still worth keeping an eye on the balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But it is Asia Pacific Wire & Cable's earnings that will influence how the balance sheet holds up in the future. 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$459m, which is a gain of 12%, 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

Over the last twelve months Asia Pacific Wire & Cable produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$8.4m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. So it seems too risky for our taste. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Asia Pacific Wire & Cable (of which 1 doesn't sit too well with us!) you should know about.

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.

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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.