Is Thriven Global Berhad (KLSE:THRIVEN) Using Debt In A Risky Way?

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 can see that Thriven Global Berhad (KLSE:THRIVEN) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Thriven Global Berhad

How Much Debt Does Thriven Global Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that Thriven Global Berhad had RM99.5m of debt in June 2022, down from RM107.0m, one year before. However, because it has a cash reserve of RM9.82m, its net debt is less, at about RM89.7m.

How Strong Is Thriven Global Berhad's Balance Sheet?

We can see from the most recent balance sheet that Thriven Global Berhad had liabilities of RM151.7m falling due within a year, and liabilities of RM7.91m due beyond that. Offsetting this, it had RM9.82m in cash and RM61.2m in receivables that were due within 12 months. So its liabilities total RM88.6m more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's RM84.8m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. 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 had a loss before interest and tax, and actually shrunk its revenue by 78%, to RM33m. To be frank that doesn't bode well.

Caveat Emptor

While Thriven Global Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable RM17m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. 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 2 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.