Mynews Holdings Berhad (KLSE:MYNEWS) Is Carrying A Fair Bit Of Debt

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.' 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. Importantly, Mynews Holdings Berhad (KLSE:MYNEWS) does carry debt. 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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out 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 January 2021 Mynews Holdings Berhad had RM56.1m of debt, an increase on RM28.1m, over one year. However, because it has a cash reserve of RM15.1m, its net debt is less, at about RM41.0m.

A Look At Mynews Holdings Berhad's Liabilities

According to the last reported balance sheet, Mynews Holdings Berhad had liabilities of RM120.6m due within 12 months, and liabilities of RM99.1m due beyond 12 months. Offsetting this, it had RM15.1m in cash and RM58.9m in receivables that were due within 12 months. So it has liabilities totalling RM145.7m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Mynews Holdings Berhad is worth RM573.0m, 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. 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 16%, to RM447m. That's not what we would hope to see.

Caveat Emptor

While Mynews Holdings 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. To be specific the EBIT loss came in at RM21m. 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. Another cause for caution is that is bled RM11m 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. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Mynews Holdings Berhad .

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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