Would GUH Holdings Berhad (KLSE:GUH) Be Better Off With Less Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that GUH Holdings Berhad (KLSE:GUH) does have debt on its balance sheet. But is this debt a concern to shareholders?

We've discovered 1 warning sign about GUH Holdings Berhad. View them for free.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is GUH Holdings Berhad's Debt?

As you can see below, at the end of December 2024, GUH Holdings Berhad had RM78.9m of debt, up from RM57.2m a year ago. Click the image for more detail. However, it does have RM69.4m in cash offsetting this, leading to net debt of about RM9.48m.

How Strong Is GUH Holdings Berhad's Balance Sheet?

According to the last reported balance sheet, GUH Holdings Berhad had liabilities of RM97.4m due within 12 months, and liabilities of RM74.9m due beyond 12 months. Offsetting this, it had RM69.4m in cash and RM48.1m in receivables that were due within 12 months. So it has liabilities totalling RM54.8m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since GUH Holdings Berhad has a market capitalization of RM93.5m, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is GUH Holdings Berhad's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for GUH Holdings Berhad

In the last year GUH Holdings Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 8.5%, to RM247m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, GUH Holdings Berhad had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping RM10m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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 RM30m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - GUH Holdings Berhad has 1 warning sign we think you should be aware of.

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.