Is Grab Holdings (NASDAQ:GRAB) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We note that Grab Holdings Limited (NASDAQ:GRAB) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Grab Holdings

How Much Debt Does Grab Holdings Carry?

The image below, which you can click on for greater detail, shows that Grab Holdings had debt of US$298.0m at the end of March 2024, a reduction from US$781.0m over a year. But on the other hand it also has US$4.29b in cash, leading to a US$3.99b net cash position.

A Look At Grab Holdings' Liabilities

According to the last reported balance sheet, Grab Holdings had liabilities of US$1.48b due within 12 months, and liabilities of US$384.0m due beyond 12 months. On the other hand, it had cash of US$4.29b and US$495.0m worth of receivables due within a year. So it actually has US$2.92b more liquid assets than total liabilities.

It's good to see that Grab Holdings has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Grab Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Grab Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Grab Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 44%, to US$2.5b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Grab Holdings?

Although Grab Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$138m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Keeping in mind its 44% revenue growth over the last year, we think there's a decent chance the company is on track. There's no doubt fast top line growth can cure all manner of ills, for a stock. For riskier companies like Grab Holdings I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com