Are Marine & General Berhad (KLSE: M&G) getting too much debt?
Legendary fund manager Li Lu (who Charlie Munger supported) once said, “The biggest risk in investing is not price volatility, but the possibility that you will suffer a permanent loss of capital. It’s only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Above all, Marine & General Berhad (KLSE: M&G) is in debt. But the most important question is: what risk does this debt create?
When Is Debt a Problem?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we think of a business’s use of debt, we first look at cash flow and debt together.
Discover our latest analysis for Marine & General Berhad
What is the debt of Marine and General Berhad?
The image below, which you can click for more details, shows Marine & General Berhad owed RM 741.4 million in debt at the end of July 2021, a reduction from RM 957.1 million. RM over one year. On the other hand, he has RM32.3million in cash leading to a net debt of around RM709.1million.
Is Marine & General Berhad’s balance sheet healthy?
We can see from the most recent balance sheet that Marine & General Berhad had liabilities of RM 107.9 million due within one year, and liabilities of RM 693.9 million due beyond. In compensation for these obligations, he had cash of RM32.3 million as well as receivables valued at RM42.2 million due within 12 months. Thus, its liabilities are RM 727.3 million more than the combination of its cash and short-term receivables.
This deficit casts a shadow over RM83.2m society, like a colossus towering over mere mortals. We therefore believe that shareholders should watch it closely. Ultimately, Marine & General Berhad would likely need a major recapitalization if their creditors demanded repayment. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in isolation; since Marine & General Berhad will need income to repay this debt. So if you want to know more about its profits, it might be worth checking out this long term profit trend chart.
In the past year, Marine & General Berhad suffered a loss before interest and taxes and actually reduced its income by 20%, to RM 173 million. We would much prefer to see the growth.
Not only has Marine & General Berhad’s revenue declined over the past twelve months, it has also produced negative earnings before interest and taxes (EBIT). Indeed, he lost a very considerable RM66m in EBIT. Thinking about this and the large total liabilities, it’s hard to know what to say about the stock due to our intense de-refinement for it. Of course, the company could have a great story on how it is heading towards a better future. But on the bright side, the company actually generated a statutory profit of RM 8.0 million and free cash flow of RM 14 million. Its situation may therefore not be as precarious as EBIT would suggest. The balance sheet is clearly the area you need to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. For example, Marine & General Berhad has 4 warning signs (and 1 which makes us a little uncomfortable) we think you should be aware of.
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash-flow-growing stocks today.
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 any of the stocks mentioned.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
When trading Marine & General Berhad or any other investment, use the platform considered by many to be the gateway for professionals to the global market, Interactive Brokers. You get the cheapest * trading on stocks, options, futures, forex, bonds and funds from around the world from a single integrated account.Promoted