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. As with many other companies GIIB Holdings Berhad (KLSE:GIIB) makes use of debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 examine debt levels, we first consider both cash and debt levels, together.
How Much Debt Does GIIB Holdings Berhad Carry?
As you can see below, GIIB Holdings Berhad had RM30.8m of debt at September 2021, down from RM46.3m a year prior. However, it does have RM25.4m in cash offsetting this, leading to net debt of about RM5.44m.
A Look At GIIB Holdings Berhad's Liabilities
Zooming in on the latest balance sheet data, we can see that GIIB Holdings Berhad had liabilities of RM43.1m due within 12 months and liabilities of RM16.1m due beyond that. On the other hand, it had cash of RM25.4m and RM18.2m worth of receivables due within a year. So it has liabilities totalling RM15.6m more than its cash and near-term receivables, combined.
Of course, GIIB Holdings Berhad has a market capitalization of RM85.7m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But it is GIIB Holdings Berhad'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.
In the last year GIIB Holdings Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 62%, to RM36m. With any luck the company will be able to grow its way to profitability.
Despite the top line growth, GIIB Holdings Berhad still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable RM25m at the EBIT level. 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. We would feel better if it turned its trailing twelve month loss of RM39m into a profit. So we do think this stock is quite risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for GIIB Holdings Berhad (2 make us uncomfortable) you should be aware of.
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.
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.