Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.'  When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin.  As with many other companies Singapore Airlines Limited $SIA (C6L.SG)$ makes use of debt.  But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price.  If things get really bad, the lenders can take control of the business.  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.  Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage.  When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Singapore Airlines

What Is Singapore Airlines's Debt?

The chart below, which you can click on for greater detail, shows that Singapore Airlines had S$12.2b in debt in March 2022; about the same as the year before.    But it also has S$14.2b in cash to offset that, meaning it has S$1.94b net cash.

SGX:C6L Debt to Equity History September 30th 2022

How Healthy Is Singapore Airlines' Balance Sheet?

We can see from the most recent balance sheet that Singapore Airlines had liabilities of S$7.87b falling due within a year, and liabilities of S$18.0b due beyond that.   On the other hand, it had cash of S$14.2b and S$1.75b worth of receivables due within a year.   So it has liabilities totalling S$9.93b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Singapore Airlines has a   huge  market capitalization of S$33.0b, and so it could probably strengthen its balance sheet by raising capital if it needed to.  However, it is still worthwhile taking a close look at its ability to pay off debt.    While it does have liabilities worth noting, Singapore Airlines also has more cash than debt, so we're pretty confident it can manage its debt safely.     When analysing debt levels, the balance sheet is the obvious place to start.  But ultimately the future profitability of the business will decide if Singapore Airlines can strengthen its balance sheet over time.  So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Singapore Airlines wasn't profitable at an EBIT level, but managed to grow its revenue by 100%, to S$7.6b.   Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Singapore Airlines?

We have no doubt that loss making companies are, in general, riskier than profitable ones.  And in the last year Singapore Airlines had an earnings before interest and tax (EBIT) loss, truth be told.  Indeed, in that time it burnt through S$82m of cash and made a loss of S$962m.   Given it only has net cash of S$1.94b, the company may need to raise more capital if it doesn't reach break-even soon.    With very solid revenue growth in the last year, Singapore Airlines may be on a path to profitability.  By investing before those profits, shareholders take on more risk in the hope of bigger rewards.     For riskier companies like Singapore Airlines I always like to keep an eye on whether insiders are buying or selling. So  click here if you want to find out for yourself.

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.