Health Check: How Prudently Does World Precision Machinery (SGX:B49) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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, World Precision Machinery Limited (SGX:B49) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is World Precision Machinery's Net Debt?

You can click the graphic below for the historical numbers, but it shows that World Precision Machinery had CN¥150.0m of debt in September 2025, down from CN¥240.0m, one year before. But on the other hand it also has CN¥182.8m in cash, leading to a CN¥32.8m net cash position.

How Strong Is World Precision Machinery's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that World Precision Machinery had liabilities of CN¥933.0m due within 12 months and liabilities of CN¥41.8m due beyond that. Offsetting these obligations, it had cash of CN¥182.8m as well as receivables valued at CN¥382.9m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥409.1m.

When you consider that this deficiency exceeds the company's CN¥319.1m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. World Precision Machinery boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. There's no doubt that we learn most about debt from the balance sheet. But it is World Precision Machinery's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for World Precision Machinery

In the last year World Precision Machinery wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to CN¥1.0b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is World Precision Machinery?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year World Precision Machinery had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥40m of cash and made a loss of CN¥1.4m. But the saving grace is the CN¥32.8m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for World Precision Machinery (1 can't be ignored) you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.