Health Check: How Prudently Does Green Packet Berhad (KLSE:GPACKET) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, Green Packet Berhad (KLSE:GPACKET) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Green Packet Berhad

What Is Green Packet Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that Green Packet Berhad had RM8.21m of debt in March 2021, down from RM289.7m, one year before. But it also has RM102.1m in cash to offset that, meaning it has RM93.9m net cash.

A Look At Green Packet Berhad's Liabilities

We can see from the most recent balance sheet that Green Packet Berhad had liabilities of RM153.3m falling due within a year, and liabilities of RM3.17m due beyond that. On the other hand, it had cash of RM102.1m and RM159.1m worth of receivables due within a year. So it can boast RM104.8m more liquid assets than total liabilities.

This surplus strongly suggests that Green Packet Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Green Packet Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Green Packet 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 Green Packet Berhad had a loss before interest and tax, and actually shrunk its revenue by 6.6%, to RM614m. That's not what we would hope to see.

So How Risky Is Green Packet Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Green Packet Berhad had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through RM42m of cash and made a loss of RM20m. However, it has net cash of RM93.9m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For example Green Packet Berhad has 4 warning signs (and 1 which is concerning) we think you should know about.

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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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.
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