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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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Ban Leong Technologies Limited (SGX:B26) makes use of debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Ban Leong Technologies
How Much Debt Does Ban Leong Technologies Carry?
The chart below, which you can click on for greater detail, shows that Ban Leong Technologies had S$3.90m in debt in March 2019; about the same as the year before. But it also has S$13.6m in cash to offset that, meaning it has S$9.68m net cash.
A Look At Ban Leong Technologies's Liabilities
Zooming in on the latest balance sheet data, we can see that Ban Leong Technologies had liabilities of S$34.1m due within 12 months and liabilities of S$201.5k due beyond that. On the other hand, it had cash of S$13.6m and S$24.1m worth of receivables due within a year. So it can boast S$3.32m more liquid assets than total liabilities.
This surplus suggests that Ban Leong Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Ban Leong Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!
It is just as well that Ban Leong Technologies's load is not too heavy, because its EBIT was down 24% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But it is Ban Leong Technologies's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.