Health Check: How Prudently Does Goodland Group (SGX:5PC) Use 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.' 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. Importantly, Goodland Group Limited (SGX:5PC) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

See our latest analysis for Goodland Group

How Much Debt Does Goodland Group Carry?

You can click the graphic below for the historical numbers, but it shows that Goodland Group had S$90.6m of debt in March 2024, down from S$105.0m, one year before. However, it does have S$7.36m in cash offsetting this, leading to net debt of about S$83.2m.

How Healthy Is Goodland Group's Balance Sheet?

We can see from the most recent balance sheet that Goodland Group had liabilities of S$88.9m falling due within a year, and liabilities of S$26.1m due beyond that. On the other hand, it had cash of S$7.36m and S$15.3m worth of receivables due within a year. So it has liabilities totalling S$92.4m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the S$33.0m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Goodland Group would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Goodland Group'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 Goodland Group had a loss before interest and tax, and actually shrunk its revenue by 51%, to S$16m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Goodland Group's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost S$1.6m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely since it is low on liquid assets, and made a loss of S$2.3m in the last year. So we think this stock is quite risky. We'd prefer to pass. 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, we've discovered 2 warning signs for Goodland Group (1 is a bit unpleasant!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.