Is Kanger International Berhad (KLSE:KANGER) A Risky Investment?

By
Simply Wall St
Published
August 30, 2021
KLSE:KANGER
Source: Shutterstock

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Kanger International Berhad (KLSE:KANGER) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Kanger International Berhad

How Much Debt Does Kanger International Berhad Carry?

As you can see below, Kanger International Berhad had RM58.0m of debt, at March 2021, which is about the same as the year before. You can click the chart for greater detail. But it also has RM81.7m in cash to offset that, meaning it has RM23.7m net cash.

debt-equity-history-analysis
KLSE:KANGER Debt to Equity History August 31st 2021

A Look At Kanger International Berhad's Liabilities

We can see from the most recent balance sheet that Kanger International Berhad had liabilities of RM111.9m falling due within a year, and liabilities of RM22.3m due beyond that. On the other hand, it had cash of RM81.7m and RM37.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM15.4m.

Since publicly traded Kanger International Berhad shares are worth a total of RM125.8m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Kanger International Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Kanger International 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.

In the last year Kanger International Berhad had a loss before interest and tax, and actually shrunk its revenue by 61%, to RM23m. To be frank that doesn't bode well.

So How Risky Is Kanger International Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Kanger International 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 RM53m and booked a RM43m accounting loss. With only RM23.7m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example Kanger International Berhad has 4 warning signs (and 2 which can't be ignored) we think 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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