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. We note that Manufacturing Integration Technology Ltd (SGX:M11) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Manufacturing Integration Technology

How Much Debt Does Manufacturing Integration Technology Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Manufacturing Integration Technology had S$2.92m of debt, an increase on S$1.29m, over one year. However, it also had S$800.0k in cash, and so its net debt is S$2.12m.

A Look At Manufacturing Integration Technology's Liabilities

The latest balance sheet data shows that Manufacturing Integration Technology had liabilities of S$5.59m due within a year, and liabilities of S$374.0k falling due after that. Offsetting this, it had S$800.0k in cash and S$1.64m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by S$3.52m.

This is a mountain of leverage relative to its market capitalization of S$4.10m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Manufacturing Integration Technology'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.

Over 12 months, Manufacturing Integration Technology made a loss at the EBIT level, and saw its revenue drop to S$6.7m, which is a fall of 20%. To be frank that doesn't bode well.

Caveat Emptor

While Manufacturing Integration Technology's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping S$4.2m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through S$1.7m of cash over the last year. So suffice it to say we consider the stock very risky. 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. For instance, we've identified 4 warning signs for Manufacturing Integration Technology (3 don't sit too well with us) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.