When ASL Marine Holdings Ltd. (SGX:A04) reported its results to June 2022 its auditors, Ernst & Young LLP could not be sure that it would be able to continue as a going concern in the next year. It is therefore fair to assume that, based on those financials, the company should strengthen its balance sheet in the short term, perhaps by issuing shares.

If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. So current risks on the balance sheet could have a big impact on how shareholders fare from here. Debt is always a risk factor in these cases, as creditors could be in a position to wind up the company, in the worst case scenario.

View our latest analysis for ASL Marine Holdings

What Is ASL Marine Holdings's Net Debt?

As you can see below, ASL Marine Holdings had S$310.0m of debt at June 2022, down from S$329.1m a year prior. However, it also had S$23.1m in cash, and so its net debt is S$286.8m.

How Healthy Is ASL Marine Holdings' Balance Sheet?

We can see from the most recent balance sheet that ASL Marine Holdings had liabilities of S$230.7m falling due within a year, and liabilities of S$285.5m due beyond that. On the other hand, it had cash of S$23.1m and S$76.7m worth of receivables due within a year. So its liabilities total S$416.4m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the S$23.3m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, ASL Marine Holdings would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since ASL Marine Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year ASL Marine Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 22%, to S$236m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, ASL Marine Holdings still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable S$16m at the EBIT level. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Sure, the company might have a nice story about how they are going on to a brighter future. But the reality is that it is low on liquid assets relative to liabilities, and it lost S$32m in the last year. So we think buying this stock is risky. We prefer to avoid a company after its auditor has expressed any uncertainty about its ability to continue as a going concern. That's because we find it more comfortable to invest in companies that always keep the balance sheet reasonably strong. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that ASL Marine Holdings is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.