Is Thriven Global Berhad (KLSE:THRIVEN) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Thriven Global Berhad (KLSE:THRIVEN) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Thriven Global Berhad

What Is Thriven Global Berhad's Debt?

As you can see below, Thriven Global Berhad had RM84.7m of debt at March 2023, down from RM102.7m a year prior. On the flip side, it has RM21.5m in cash leading to net debt of about RM63.2m.

A Look At Thriven Global Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that Thriven Global Berhad had liabilities of RM126.0m due within 12 months and liabilities of RM39.0m due beyond that. On the other hand, it had cash of RM21.5m and RM33.2m worth of receivables due within a year. So it has liabilities totalling RM110.3m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the RM60.2m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Thriven Global Berhad would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Thriven Global 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.

In the last year Thriven Global Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 112%, to RM107m. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Despite the top line growth, Thriven Global Berhad still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping RM15m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of RM23m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 4 warning signs with Thriven Global Berhad (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.