We Think Greenyield Berhad (KLSE:GREENYB) Has A Fair Chunk Of Debt

Warren Buffett famously said, '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. Importantly, Greenyield Berhad (KLSE:GREENYB) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Greenyield Berhad's Debt?

As you can see below, at the end of December 2024, Greenyield Berhad had RM7.11m of debt, up from RM4.99m a year ago. Click the image for more detail. However, it does have RM4.35m in cash offsetting this, leading to net debt of about RM2.76m.

How Healthy Is Greenyield Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Greenyield Berhad had liabilities of RM6.56m due within 12 months and liabilities of RM62.7m due beyond that. On the other hand, it had cash of RM4.35m and RM6.60m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM58.3m.

This deficit isn't so bad because Greenyield Berhad is worth RM119.3m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is Greenyield 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.

View our latest analysis for Greenyield Berhad

In the last year Greenyield Berhad had a loss before interest and tax, and actually shrunk its revenue by 3.8%, to RM37m. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Greenyield Berhad produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at RM6.9m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through RM999k of cash over the last year. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Greenyield Berhad is showing 3 warning signs in our investment analysis , and 2 of those make us uncomfortable...

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.