Would Sing Lee Software (Group) (HKG: 8076) fare better with less debt?
Warren Buffett said: “Volatility is far from synonymous with risk”. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Mostly, Sing Lee Software (Group) Limited (HKG: 8076) carries a debt. But does this debt concern shareholders?
Why Does Debt Bring Risk?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, many companies use debt to finance their growth without negative consequences. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
Check out our latest analysis for Sing Lee Software (Group)
How much debt does Sing Lee Software (Group) have?
As you can see below, Sing Lee Software (Group) had a debt of CN 44.6 million in June 2021, compared to CN 66.9 million the previous year. However, given that it has a cash reserve of CN 41.6 million, its net debt is less, at around CN 3.04 million.
How strong is Sing Lee Software (Group) ‘s balance sheet?
Zooming in on the latest balance sheet data, we can see that Sing Lee Software (Group) had liabilities of CN 36.9 million due within 12 months and liabilities of CN 23.0 million beyond. On the other hand, he had cash of CN 41.6 million and CN 54.4 million of receivables due within one year. Thus, it can boast of having CN 36.0 million of liquid assets more than total Liabilities.
This abundant liquidity means that Sing Lee Software (Group) ‘s balance sheet is as solid as a giant sequoia. Given this fact, we believe its track record is as strong as an ox. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is the results of Sing Lee Software (Group) that will influence the balance sheet in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
Over 12 months, Sing Lee Software (Group) recorded a loss in EBIT and saw its turnover fall to CNN 93 million, a decrease of 19%. This is not what we hope to see.
While Sing Lee Software’s (Group) s decline in revenue is about as heartwarming as a wet blanket, its earnings before interest and taxes (EBIT) can be said to be even less attractive. Indeed, it lost a very considerable amount of CN 30 million in EBIT. On a more positive note, the company has liquid assets, so it has some time to improve its operations before debt becomes a serious problem. But we would like to see positive free cash flow before we spend a lot of time trying to figure out the headline. So it seems too risky for our taste. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. For example, Sing Lee Software (Group) has 4 warning signs (and 2 which are a bit disturbing) we think you should be aware of.
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
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