GC Rieber Shipping (OB:RISH) Is Making Moderate Use Of 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.' 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. As with many other companies GC Rieber Shipping ASA (OB:RISH) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. 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.

Check out our latest analysis for GC Rieber Shipping

What Is GC Rieber Shipping's Debt?

As you can see below, GC Rieber Shipping had kr805.2m of debt at December 2020, down from kr1.12b a year prior. However, it does have kr240.4m in cash offsetting this, leading to net debt of about kr564.7m.

How Healthy Is GC Rieber Shipping's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that GC Rieber Shipping had liabilities of kr48.3m due within 12 months and liabilities of kr794.3m due beyond that. Offsetting these obligations, it had cash of kr240.4m as well as receivables valued at kr30.4m due within 12 months. So it has liabilities totalling kr571.7m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of kr722.7m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is GC Rieber Shipping'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 GC Rieber Shipping's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, GC Rieber Shipping had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at kr50m. 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. For example, we would not want to see a repeat of last year's loss of kr495m. In the meantime, we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for GC Rieber Shipping that you should be aware of.

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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