Here's Why Mynews Holdings Berhad (KLSE:MYNEWS) Can Afford Some Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Mynews Holdings Berhad (KLSE:MYNEWS) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Mynews Holdings Berhad

How Much Debt Does Mynews Holdings Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that as of October 2020 Mynews Holdings Berhad had RM67.6m of debt, an increase on RM26.1m, over one year. On the flip side, it has RM45.3m in cash leading to net debt of about RM22.3m.

How Strong Is Mynews Holdings Berhad's Balance Sheet?

The latest balance sheet data shows that Mynews Holdings Berhad had liabilities of RM125.5m due within a year, and liabilities of RM112.2m falling due after that. On the other hand, it had cash of RM45.3m and RM59.0m worth of receivables due within a year. So its liabilities total RM133.5m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Mynews Holdings Berhad is worth RM395.6m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Mynews Holdings Berhad's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Mynews Holdings Berhad had a loss before interest and tax, and actually shrunk its revenue by 5.4%, to RM490m. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Mynews Holdings Berhad produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at RM8.9m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of RM9.2m. So we do think this stock is quite risky. 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. For example, we've discovered 1 warning sign for Mynews Holdings Berhad that you should be aware of before investing here.

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.

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