Is Green Packet Berhad (KLSE:GPACKET) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Green Packet Berhad (KLSE:GPACKET) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Green Packet Berhad

What Is Green Packet Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Green Packet Berhad had RM13.9m of debt in December 2022, down from RM15.1m, one year before. However, its balance sheet shows it holds RM22.9m in cash, so it actually has RM9.08m net cash.

A Look At Green Packet Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that Green Packet Berhad had liabilities of RM188.2m due within 12 months and liabilities of RM7.75m due beyond that. On the other hand, it had cash of RM22.9m and RM183.8m worth of receivables due within a year. So it actually has RM10.8m more liquid assets than total liabilities.

This short term liquidity is a sign that Green Packet Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. 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 wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to RM635m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Green Packet Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Green Packet Berhad had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of RM49m and booked a RM43m accounting loss. But at least it has RM9.08m on the balance sheet to spend on growth, near-term. 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. 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. We've identified 5 warning signs with Green Packet Berhad (at least 3 which are a bit unpleasant) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.