Here's Why Green Ocean Corporation Berhad (KLSE:GOCEAN) Can Manage Its Debt Despite Losing Money

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Green Ocean Corporation Berhad (KLSE:GOCEAN) makes use of debt. But is this debt a concern to shareholders?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.

Check out our latest analysis for Green Ocean Corporation Berhad

What Is Green Ocean Corporation Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Green Ocean Corporation Berhad had RM15.8m of debt, an increase on RM6.69m, over one year. However, it does have RM82.7m in cash offsetting this, leading to net cash of RM66.9m.

A Look At Green Ocean Corporation Berhad's Liabilities

According to the last reported balance sheet, Green Ocean Corporation Berhad had liabilities of RM10.7m due within 12 months, and liabilities of RM6.15m due beyond 12 months. On the other hand, it had cash of RM82.7m and RM29.1m worth of receivables due within a year. So it actually has RM95.0m more liquid assets than total liabilities.

This surplus strongly suggests that Green Ocean Corporation Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Green Ocean Corporation Berhad 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 Green Ocean Corporation 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, Green Ocean Corporation Berhad reported revenue of RM12m, which is a gain of 65%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Green Ocean Corporation Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Green Ocean Corporation Berhad lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of RM5.7m and booked a RM7.3m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of RM66.9m. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, Green Ocean Corporation Berhad may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 4 warning signs we've spotted with Green Ocean Corporation Berhad (including 3 which make us uncomfortable) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com