Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried. ” So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. We note that Dolphin International Berhad (KLSE: DOLPHIN) has debt on its balance sheet. But does this debt worry shareholders?
When Is Debt a Problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. If things really go wrong, lenders can take over the business. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
Check out our latest analysis for Dolphin International Berhad
What is the debt of Dolphin International Berhad?
As you can see below, at the end of June 2021, Dolphin International Berhad had a debt of RM18.7million, up from RM17.8million a year ago. Click on the image for more details. On the other hand, he has RM9.02 million in cash, resulting in net debt of around RM9.65 million.
How healthy is Dolphin International Berhad’s track record?
We can see from the most recent balance sheet that Dolphin International Berhad had liabilities of RM 16.0 million due within one year and liabilities of RM 10.8 million due beyond. In return, he had RM 9.02 million in cash and RM 3.39 million in receivables due within 12 months. Thus, its liabilities total RM14.4 million more than the combination of its cash and short-term receivables.
Of course, Dolphin International Berhad has a market cap of RM79.5 million, so these liabilities are probably manageable. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time. When analyzing debt levels, the balance sheet is the obvious starting point. But it is the profits of Dolphin International Berhad that will influence the performance of the balance sheet in the future. So if you want to know more about its profits, it may be worth checking out this chart of its long term profit trend.
Over 12 months, Dolphin International Berhad reported revenue of RM 8.9 million, a gain of 7.3%, although it reported no profit before interest and taxes. This rate of growth is a bit slow for our taste, but it takes all types to make a world.
During the last twelve months, Dolphin International Berhad recorded a loss of profit before interest and taxes (EBIT). His loss of EBIT was a huge RM38m. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. We therefore believe that its record is a bit strained, but not irreparable. Another reason to be cautious is that he has lost RM34 million in negative free cash flow in the past twelve months. Suffice it to say that we consider the title very risky. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. For example, Dolphin International Berhad has 5 warning signs (and 3 which are a bit disturbing) we think you should know about.
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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