Is Mynews Holdings Berhad (KLSE:MYNEWS) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. 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?

Why Does Debt Bring Risk?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 Mynews Holdings Berhad

What Is Mynews Holdings Berhad's Debt?

As you can see below, at the end of October 2021, Mynews Holdings Berhad had RM71.0m of debt, up from RM67.6m a year ago. Click the image for more detail. However, it does have RM16.2m in cash offsetting this, leading to net debt of about RM54.7m.

How Healthy Is Mynews Holdings Berhad's Balance Sheet?

According to the last reported balance sheet, Mynews Holdings Berhad had liabilities of RM138.8m due within 12 months, and liabilities of RM121.8m due beyond 12 months. On the other hand, it had cash of RM16.2m and RM55.9m worth of receivables due within a year. So it has liabilities totalling RM188.5m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Mynews Holdings Berhad has a market capitalization of RM494.6m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. 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're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Mynews Holdings Berhad had a loss before interest and tax, and actually shrunk its revenue by 18%, to RM401m. We would much prefer see growth.

Caveat Emptor

Not only did Mynews Holdings Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable RM51m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled RM1.7m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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 example, we've discovered 1 warning sign for Mynews Holdings Berhad that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.