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. Importantly, Beng Kuang Marine Limited (SGX:BEZ) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Beng Kuang Marine

How Much Debt Does Beng Kuang Marine Carry?

You can click the graphic below for the historical numbers, but it shows that Beng Kuang Marine had S$35.0m of debt in March 2019, down from S$50.2m, one year before. However, because it has a cash reserve of S$4.84m, its net debt is less, at about S$30.1m.

How Strong Is Beng Kuang Marine's Balance Sheet?

The latest balance sheet data shows that Beng Kuang Marine had liabilities of S$66.6m due within a year, and liabilities of S$10.2m falling due after that. On the other hand, it had cash of S$4.84m and S$29.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by S$42.7m.

The deficiency here weighs heavily on the S$8.51m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Beng Kuang Marine would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Beng Kuang Marine will need earnings to service that debt. 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.

Over 12 months, Beng Kuang Marine reported revenue of S$55m, which is a gain of 40%. With any luck the company will be able to grow its way to profitability.