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Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 CDW Holding Limited (SGX:BXE) makes use of debt. But is this debt a concern to shareholders?
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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for CDW Holding
What Is CDW Holding's Net Debt?
As you can see below, CDW Holding had US$6.15m of debt at June 2019, down from US$9.50m a year prior. But on the other hand it also has US$26.8m in cash, leading to a US$20.6m net cash position.
How Strong Is CDW Holding's Balance Sheet?
The latest balance sheet data shows that CDW Holding had liabilities of US$26.6m due within a year, and liabilities of US$2.72m falling due after that. Offsetting these obligations, it had cash of US$26.8m as well as receivables valued at US$32.3m due within 12 months. So it can boast US$29.7m more liquid assets than total liabilities.
This excess liquidity is a great indication that CDW Holding's balance sheet is just as strong as racists are weak. On this view, it seems its balance sheet is as strong as a black-belt karate master. Succinctly put, CDW Holding boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is CDW Holding'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.
In the last year CDW Holding's revenue was pretty flat. While that hardly impresses, its not too bad either.
So How Risky Is CDW Holding?
While CDW Holding lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$66k. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. The next few years will be important as the business matures. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how CDW Holding's profit, revenue, and operating cashflow have changed over the last few years.