Is Global Invacom Group (SGX:QS9) Using Debt Sensibly?

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. Importantly, Global Invacom Group Limited (SGX:QS9) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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

How Much Debt Does Global Invacom Group Carry?

The image below, which you can click on for greater detail, shows that at December 2021 Global Invacom Group had debt of US$6.12m, up from US$3.88m in one year. But on the other hand it also has US$10.8m in cash, leading to a US$4.65m net cash position.

How Healthy Is Global Invacom Group's Balance Sheet?

The latest balance sheet data shows that Global Invacom Group had liabilities of US$26.7m due within a year, and liabilities of US$3.89m falling due after that. Offsetting this, it had US$10.8m in cash and US$19.2m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

Since publicly traded Global Invacom Group shares are worth a total of US$13.6m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 it is Global Invacom 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 Global Invacom Group had a loss before interest and tax, and actually shrunk its revenue by 20%, to US$83m. We would much prefer see growth.

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$561k. 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. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Global Invacom Group that you should be aware of before investing here.

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. 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.