Trive Property Group Berhad (KLSE:TRIVE) Has Debt But No Earnings; Should You Worry?

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 Trive Property Group Berhad (KLSE:TRIVE) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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.

See our latest analysis for Trive Property Group Berhad

What Is Trive Property Group Berhad's Net Debt?

The chart below, which you can click on for greater detail, shows that Trive Property Group Berhad had RM52.0m in debt in October 2020; about the same as the year before. However, it also had RM2.98m in cash, and so its net debt is RM49.0m.

How Healthy Is Trive Property Group Berhad's Balance Sheet?

According to the last reported balance sheet, Trive Property Group Berhad had liabilities of RM16.9m due within 12 months, and liabilities of RM47.6m due beyond 12 months. On the other hand, it had cash of RM2.98m and RM8.44m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM53.1m.

The deficiency here weighs heavily on the RM30.8m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Trive Property Group Berhad would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Trive Property Group Berhad'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.

In the last year Trive Property Group Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 28%, to RM5.0m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Trive Property Group Berhad still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping RM4.5m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of RM5.0m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Trive Property Group Berhad (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.

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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