Thriven Global Berhad (KLSE:THRIVEN) 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Thriven Global Berhad (KLSE:THRIVEN) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. 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

What Is Thriven Global Berhad's Debt?

As you can see below, Thriven Global Berhad had RM102.7m of debt at March 2022, down from RM120.3m a year prior. However, because it has a cash reserve of RM18.2m, its net debt is less, at about RM84.5m.

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 RM159.2m due within 12 months and liabilities of RM9.91m due beyond that. Offsetting this, it had RM18.2m in cash and RM69.6m in receivables that were due within 12 months. So it has liabilities totalling RM81.3m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's RM62.9m 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 it is Thriven Global Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Thriven Global Berhad had a loss before interest and tax, and actually shrunk its revenue by 66%, to RM50m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Thriven Global Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping RM13m. 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 RM20m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. 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. For instance, we've identified 4 warning signs for Thriven Global Berhad (1 is significant) you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.