Does Malaysian Bulk Carriers Berhad (KLSE:MAYBULK) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Malaysian Bulk Carriers Berhad (KLSE:MAYBULK) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Malaysian Bulk Carriers Berhad

How Much Debt Does Malaysian Bulk Carriers Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that Malaysian Bulk Carriers Berhad had RM264.4m of debt in September 2020, down from RM374.9m, one year before. However, because it has a cash reserve of RM72.9m, its net debt is less, at about RM191.5m.

How Healthy Is Malaysian Bulk Carriers Berhad's Balance Sheet?

The latest balance sheet data shows that Malaysian Bulk Carriers Berhad had liabilities of RM164.3m due within a year, and liabilities of RM278.2m falling due after that. On the other hand, it had cash of RM72.9m and RM18.7m worth of receivables due within a year. So its liabilities total RM350.9m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of RM540.0m, so it does suggest shareholders should keep an eye on Malaysian Bulk Carriers Berhad's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Malaysian Bulk Carriers 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 Malaysian Bulk Carriers Berhad had a loss before interest and tax, and actually shrunk its revenue by 29%, to RM192m. To be frank that doesn't bode well.

Caveat Emptor

While Malaysian Bulk Carriers Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at RM2.4m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Surprisingly, we note that it actually reported positive free cash flow of RM108m and a profit of RM41m. So one might argue that there's still a chance it can get things on the right track. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 4 warning signs we've spotted with Malaysian Bulk Carriers Berhad .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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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