Is Green Ocean Corporation Berhad (KLSE:GOCEAN) Weighed On By Its Debt Load?

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. Importantly, Green Ocean Corporation Berhad (KLSE:GOCEAN) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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.

See our latest analysis for Green Ocean Corporation Berhad

How Much Debt Does Green Ocean Corporation Berhad Carry?

As you can see below, at the end of September 2022, Green Ocean Corporation Berhad had RM6.80m of debt, up from none a year ago. Click the image for more detail. But it also has RM55.0m in cash to offset that, meaning it has RM48.2m net cash.

How Strong Is Green Ocean Corporation Berhad's Balance Sheet?

The latest balance sheet data shows that Green Ocean Corporation Berhad had liabilities of RM485.0k due within a year, and liabilities of RM7.51m falling due after that. Offsetting this, it had RM55.0m in cash and RM34.5m in receivables that were due within 12 months. So it can boast RM81.5m more liquid assets than total liabilities.

This surplus liquidity suggests that Green Ocean Corporation Berhad's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Green Ocean Corporation Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. 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 made a loss at the EBIT level, and saw its revenue drop to RM7.7m, which is a fall of 36%. That makes us nervous, to say the least.

So How Risky Is Green Ocean Corporation Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Green Ocean Corporation Berhad had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through RM3.3m of cash and made a loss of RM25m. With only RM48.2m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Be aware that Green Ocean Corporation Berhad is showing 4 warning signs in our investment analysis , and 2 of those are potentially serious...

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.