Golden Pharos Berhad (KLSE:GPHAROS) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, Golden Pharos Berhad (KLSE:GPHAROS) does carry debt. But should shareholders be worried about its use of debt?

Our free stock report includes 2 warning signs investors should be aware of before investing in Golden Pharos Berhad. Read for free now.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Golden Pharos Berhad's Debt?

As you can see below, Golden Pharos Berhad had RM6.49m of debt at December 2024, down from RM7.73m a year prior. However, it does have RM22.8m in cash offsetting this, leading to net cash of RM16.3m.

How Healthy Is Golden Pharos Berhad's Balance Sheet?

The latest balance sheet data shows that Golden Pharos Berhad had liabilities of RM20.8m due within a year, and liabilities of RM13.6m falling due after that. Offsetting these obligations, it had cash of RM22.8m as well as receivables valued at RM15.9m due within 12 months. So it can boast RM4.29m more liquid assets than total liabilities.

This surplus suggests that Golden Pharos Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Golden Pharos 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 Golden Pharos 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.

View our latest analysis for Golden Pharos Berhad

In the last year Golden Pharos Berhad had a loss before interest and tax, and actually shrunk its revenue by 47%, to RM47m. That makes us nervous, to say the least.

So How Risky Is Golden Pharos Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Golden Pharos Berhad lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of RM16m and booked a RM14m accounting loss. Given it only has net cash of RM16.3m, the company may need to raise more capital if it doesn't reach break-even soon. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Golden Pharos Berhad (of which 1 shouldn't be ignored!) you should know about.

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.