Is Global Invacom Group (SGX:QS9) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Global Invacom Group Limited (SGX:QS9) makes use of debt. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Global Invacom Group

What Is Global Invacom Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Global Invacom Group had US$6.20m of debt in June 2021, down from US$10.3m, one year before. But it also has US$9.44m in cash to offset that, meaning it has US$3.24m net cash.

A Look At Global Invacom Group's Liabilities

The latest balance sheet data shows that Global Invacom Group had liabilities of US$23.6m due within a year, and liabilities of US$5.07m falling due after that. Offsetting this, it had US$9.44m in cash and US$15.8m in receivables that were due within 12 months. So its liabilities total US$3.40m more than the combination of its cash and short-term receivables.

Given Global Invacom Group has a market capitalization of US$17.9m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Global Invacom Group also has more cash than debt, so we're pretty confident 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 Global Invacom Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Global Invacom Group made a loss at the EBIT level, and saw its revenue drop to US$91m, which is a fall of 21%. That makes us nervous, to say the least.

So How Risky Is Global Invacom Group?

Although Global Invacom Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$1.1m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. To that end, you should be aware of the 3 warning signs we've spotted with Global Invacom Group .

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.
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