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

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. We can see that Global Invacom Group Limited (SGX:QS9) does use debt in its business. But the real question is whether this debt is making the company risky.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

Check out our latest analysis for Global Invacom Group

How Much Debt Does Global Invacom Group Carry?

As you can see below, Global Invacom Group had US$4.20m of debt at June 2023, down from US$5.71m a year prior. However, its balance sheet shows it holds US$5.50m in cash, so it actually has US$1.30m net cash.

A Look At Global Invacom Group's Liabilities

We can see from the most recent balance sheet that Global Invacom Group had liabilities of US$20.2m falling due within a year, and liabilities of US$1.83m due beyond that. On the other hand, it had cash of US$5.50m and US$14.9m worth of receivables due within a year. So it has liabilities totalling US$1.60m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Global Invacom Group is worth US$6.19m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is Global Invacom Group's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year Global Invacom Group had a loss before interest and tax, and actually shrunk its revenue by 16%, to US$67m. We would much prefer see growth.

So How Risky Is Global Invacom Group?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Global Invacom Group had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$1.4m and booked a US$14m accounting loss. Given it only has net cash of US$1.30m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. We've identified 3 warning signs with Global Invacom Group , and understanding them should be part of your investment process.

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.

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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.