GIIB Holdings Berhad (KLSE:GIIB) Is Carrying A Fair Bit Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that GIIB Holdings Berhad (KLSE:GIIB) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for GIIB Holdings Berhad

How Much Debt Does GIIB Holdings Berhad Carry?

As you can see below, GIIB Holdings Berhad had RM9.42m of debt at March 2023, down from RM23.2m a year prior. However, it also had RM4.22m in cash, and so its net debt is RM5.20m.

How Strong Is GIIB Holdings Berhad's Balance Sheet?

The latest balance sheet data shows that GIIB Holdings Berhad had liabilities of RM50.6m due within a year, and liabilities of RM6.44m falling due after that. Offsetting these obligations, it had cash of RM4.22m as well as receivables valued at RM13.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM39.1m.

While this might seem like a lot, it is not so bad since GIIB Holdings Berhad has a market capitalization of RM76.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since GIIB Holdings Berhad 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, GIIB Holdings Berhad reported revenue of RM39m, 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.

Caveat Emptor

Over the last twelve months GIIB Holdings Berhad produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping RM12m. 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. For example, we would not want to see a repeat of last year's loss of RM10.0m. So we do think this stock is quite risky. 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. For example, we've discovered 3 warning signs for GIIB Holdings Berhad (2 make us uncomfortable!) that you should be aware of before investing here.

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.