Does Worldgate Global Logistics (HKG:8292) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, Worldgate Global Logistics Ltd (HKG:8292) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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, 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.

View our latest analysis for Worldgate Global Logistics

What Is Worldgate Global Logistics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 Worldgate Global Logistics had RM13.2m of debt, an increase on RM12.2m, over one year. But on the other hand it also has RM17.7m in cash, leading to a RM4.52m net cash position.

How Strong Is Worldgate Global Logistics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Worldgate Global Logistics had liabilities of RM13.3m due within 12 months and liabilities of RM11.2m due beyond that. Offsetting these obligations, it had cash of RM17.7m as well as receivables valued at RM23.4m due within 12 months. So it actually has RM16.6m more liquid assets than total liabilities.

This luscious liquidity implies that Worldgate Global Logistics' balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Worldgate Global Logistics boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Worldgate Global Logistics'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, Worldgate Global Logistics reported revenue of RM74m, which is a gain of 11%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Worldgate Global Logistics?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Worldgate Global Logistics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through RM5.8m of cash and made a loss of RM3.2m. With only RM4.52m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 example Worldgate Global Logistics has 4 warning signs (and 3 which are significant) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.
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