Does Singapore Press Holdings (SGX: T39) have a healthy balance sheet?
David Iben put it well when he said: âVolatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. We can see that Singapore Press Holdings Limited (SGX: T39) uses debt in his business. But the most important question is: what risk does this debt create?
When Is Debt a Problem?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. 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.
See our latest analysis for Singapore Press Holdings
How much debt does Singapore Press Holdings have?
You can click on the graph below for historical figures, but it shows that as of February 2021, Singapore Press Holdings was in debt of S $ 3.44 billion, an increase from $ 2.97 billion. Singaporeans, over one year. However, because it has a cash reserve of S $ 959.5 million, its net debt is less, at around S $ 2.48 billion.
How healthy is Singapore Press Holdings’ balance sheet?
We can see from the most recent balance sheet that Singapore Press Holdings had a liability of S $ 1.20 billion maturing within one year and a liability of S $ 2.69 billion beyond. In return, he had S $ 959.5 million in cash and S $ 135.9 million in receivables due within 12 months. It therefore has liabilities totaling $ 2.80 billion more than its cash and short-term receivables combined.
This deficit is sizable compared to its market cap of S $ 2.93 billion, so he suggests shareholders keep an eye on Singapore Press Holdings’ use of debt. This suggests that shareholders would be heavily diluted if the company needed to consolidate its balance sheet quickly.
We measure a company’s indebtedness relative to its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation, and amortization (EBITDA) and calculating the ease with which its earnings before interest and taxes (EBIT ) covers its interests. costs (interest coverage). Thus, we consider debt versus earnings with and without amortization charges.
Singapore Press Holdings has a fairly high debt-to-EBITDA ratio of 14.9, which suggests significant leverage. However, its interest coverage of 3.9 is reasonably strong, which is a good sign. Worse yet, Singapore Press Holdings’ EBIT was down 47% from a year ago. If profits continue to follow this path, it will be more difficult to pay off this debt than to convince us to run a marathon in the rain. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Singapore Press Holdings’ ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Finally, while the IRS may love accounting profits, lenders only accept hard cash. It is therefore worth checking to what extent this EBIT is supported by free cash flow. Over the past three years, Singapore Press Holdings has actually generated more free cash flow than EBIT. This kind of strong cash generation warms our hearts like a puppy in a bumblebee costume.
Our point of view
To be frank, Singapore Press Holdings’ net debt to EBITDA and track record of (not) growing its EBIT makes us rather uncomfortable with its debt levels. But on the positive side, its conversion from EBIT to free cash flow is a good sign and makes us more optimistic. Overall, we think it’s fair to say that Singapore Press Holdings has enough debt that there is real risk around the balance sheet. If all goes well it may pay off, but the downside to this debt is a greater risk of permanent losses. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. To this end, you should inquire about the 2 warning signs we spotted with Singapore Press Holdings (including 1 which is significant).
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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