Is DGB Asia Berhad (KLSE:DGB) A Risky Investment?

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.' 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 DGB Asia Berhad (KLSE:DGB) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for DGB Asia Berhad

What Is DGB Asia Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 DGB Asia Berhad had RM33.0m of debt, an increase on none, over one year. On the flip side, it has RM32.2m in cash leading to net debt of about RM843.0k.

How Strong Is DGB Asia Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that DGB Asia Berhad had liabilities of RM16.5m due within 12 months and liabilities of RM33.4m due beyond that. Offsetting these obligations, it had cash of RM32.2m as well as receivables valued at RM38.0m due within 12 months. So it actually has RM20.3m more liquid assets than total liabilities.

This luscious liquidity implies that DGB Asia Berhad's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is just as strong as misogynists are weak. Carrying virtually no net debt, DGB Asia Berhad has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But it is DGB Asia 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 DGB Asia Berhad's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months DGB Asia Berhad produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping RM12m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd be more likely to spend time trying to understand the stock if the company made a profit. This one is a bit too risky for our liking. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 5 warning signs for DGB Asia Berhad you should be aware of, and 2 of them are a bit unpleasant.

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.

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This article by Simply Wall St is general in nature. 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.
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