Does Golden Land Berhad (KLSE:GLBHD) Have A Healthy Balance Sheet?

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.' 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. Importantly, Golden Land Berhad (KLSE:GLBHD) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 Golden Land Berhad

What Is Golden Land Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Golden Land Berhad had RM202.3m of debt, an increase on RM167.1m, over one year. However, it also had RM78.6m in cash, and so its net debt is RM123.7m.

A Look At Golden Land Berhad's Liabilities

The latest balance sheet data shows that Golden Land Berhad had liabilities of RM117.6m due within a year, and liabilities of RM133.3m falling due after that. Offsetting this, it had RM78.6m in cash and RM36.5m in receivables that were due within 12 months. So it has liabilities totalling RM135.7m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of RM107.3m, we think shareholders really should watch Golden Land Berhad's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But it is Golden Land 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 Golden Land Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 91%, to RM77m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though Golden Land Berhad managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable RM15m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of RM7.5m over the last twelve months. So suffice it to say we consider the stock to be risky. 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. Case in point: We've spotted 2 warning signs for Golden Land Berhad you should be aware of, and 1 of them is potentially serious.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.