Is Integrated Logistics Berhad (KLSE:ILB) 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. Importantly, Integrated Logistics Berhad (KLSE:ILB) does carry debt. 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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Integrated Logistics Berhad

What Is Integrated Logistics Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that Integrated Logistics Berhad had RM65.1m of debt in March 2021, down from RM97.9m, one year before. But on the other hand it also has RM84.0m in cash, leading to a RM18.9m net cash position.

A Look At Integrated Logistics Berhad's Liabilities

We can see from the most recent balance sheet that Integrated Logistics Berhad had liabilities of RM18.7m falling due within a year, and liabilities of RM51.3m due beyond that. On the other hand, it had cash of RM84.0m and RM15.6m worth of receivables due within a year. So it can boast RM29.6m more liquid assets than total liabilities.

This luscious liquidity implies that Integrated Logistics Berhad's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Integrated Logistics Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Integrated Logistics Berhad will need earnings to service that debt. 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.

Over 12 months, Integrated Logistics Berhad made a loss at the EBIT level, and saw its revenue drop to RM8.2m, which is a fall of 15%. We would much prefer see growth.

So How Risky Is Integrated Logistics Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Integrated Logistics Berhad had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through RM22m of cash and made a loss of RM26m. Given it only has net cash of RM18.9m, the company may need to raise more capital if it doesn't reach break-even soon. 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. For example Integrated Logistics Berhad has 5 warning signs (and 1 which is potentially serious) we think you should know about.

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.

If you’re looking to trade a wide range of investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.