Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that GLOME Holdings,Inc. (TYO:8938) does use debt in its business. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 GLOME HoldingsInc
How Much Debt Does GLOME HoldingsInc Carry?
The image below, which you can click on for greater detail, shows that GLOME HoldingsInc had debt of JP¥1.31b at the end of December 2020, a reduction from JP¥7.60b over a year. However, it does have JP¥1.94b in cash offsetting this, leading to net cash of JP¥635.0m.
How Healthy Is GLOME HoldingsInc's Balance Sheet?
According to the last reported balance sheet, GLOME HoldingsInc had liabilities of JP¥1.80b due within 12 months, and liabilities of JP¥273.0m due beyond 12 months. Offsetting these obligations, it had cash of JP¥1.94b as well as receivables valued at JP¥779.0m due within 12 months. So it actually has JP¥645.0m more liquid assets than total liabilities.
This surplus suggests that GLOME HoldingsInc has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, GLOME HoldingsInc boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since GLOME HoldingsInc will need earnings to service that debt. 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, GLOME HoldingsInc made a loss at the EBIT level, and saw its revenue drop to JP¥3.6b, which is a fall of 59%. That makes us nervous, to say the least.
So How Risky Is GLOME HoldingsInc?
Although GLOME HoldingsInc had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of JP¥2.4b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with GLOME HoldingsInc (including 2 which don't sit too well with us) .
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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This article by Simply Wall St is general in nature. 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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About TSE:8938
GLOME HoldingsInc
Engages in the medical-related and real estate businesses in Japan and internationally.
Adequate balance sheet very low.
