Is Comfort Gloves Berhad (KLSE:COMFORT) Weighed On By Its Debt Load?

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. Importantly, Comfort Gloves Berhad (KLSE:COMFORT) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Comfort Gloves Berhad

What Is Comfort Gloves Berhad's Debt?

As you can see below, at the end of September 2024, Comfort Gloves Berhad had RM58.2m of debt, up from RM36.8m a year ago. Click the image for more detail. However, it does have RM197.1m in cash offsetting this, leading to net cash of RM138.8m.

A Look At Comfort Gloves Berhad's Liabilities

According to the last reported balance sheet, Comfort Gloves Berhad had liabilities of RM113.0m due within 12 months, and liabilities of RM11.8m due beyond 12 months. On the other hand, it had cash of RM197.1m and RM167.2m worth of receivables due within a year. So it can boast RM239.5m more liquid assets than total liabilities.

This luscious liquidity implies that Comfort Gloves Berhad's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Comfort Gloves 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 Comfort Gloves Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Comfort Gloves Berhad made a loss at the EBIT level, and saw its revenue drop to RM323m, which is a fall of 9.3%. We would much prefer see growth.

So How Risky Is Comfort Gloves Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Comfort Gloves Berhad had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of RM78m and booked a RM39m accounting loss. But at least it has RM138.8m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For instance, we've identified 2 warning signs for Comfort Gloves Berhad (1 is a bit concerning) 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.

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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.