Health Check: How Prudently Does Mynews Holdings Berhad (KLSE:MYNEWS) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. We can see that Mynews Holdings Berhad (KLSE:MYNEWS) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Mynews Holdings Berhad

How Much Debt Does Mynews Holdings Berhad Carry?

The image below, which you can click on for greater detail, shows that at April 2022 Mynews Holdings Berhad had debt of RM85.2m, up from RM58.9m in one year. However, because it has a cash reserve of RM12.1m, its net debt is less, at about RM73.1m.

A Look At Mynews Holdings Berhad's Liabilities

The latest balance sheet data shows that Mynews Holdings Berhad had liabilities of RM207.7m due within a year, and liabilities of RM151.0m falling due after that. Offsetting these obligations, it had cash of RM12.1m as well as receivables valued at RM50.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM296.4m.

This deficit is considerable relative to its market capitalization of RM300.1m, so it does suggest shareholders should keep an eye on Mynews Holdings Berhad's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Mynews Holdings Berhad can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Mynews Holdings Berhad reported revenue of RM472m, which is a gain of 10%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Mynews Holdings Berhad produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping RM44m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of RM42m into a profit. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Mynews Holdings Berhad you should be aware of.

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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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.