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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 can see that Genting Singapore Limited (SGX:G13) does use debt in its business. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for Genting Singapore
What Is Genting Singapore's Debt?
As you can see below, Genting Singapore had S$251.5m of debt at June 2019, down from S$1.15b a year prior. But it also has S$3.64b in cash to offset that, meaning it has S$3.39b net cash.
How Healthy Is Genting Singapore's Balance Sheet?
We can see from the most recent balance sheet that Genting Singapore had liabilities of S$626.3m falling due within a year, and liabilities of S$538.4m due beyond that. On the other hand, it had cash of S$3.64b and S$148.4m worth of receivables due within a year. So it can boast S$2.63b more liquid assets than total liabilities.
It's good to see that Genting Singapore has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Genting Singapore has more cash than debt is arguably a good indication that it can manage its debt safely.
While Genting Singapore doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Genting Singapore can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.