Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Grab Holdings Limited (NASDAQ:GRAB) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Grab Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Grab Holdings had US$298.0m of debt in March 2024, down from US$781.0m, one year before. However, it does have US$4.29b in cash offsetting this, leading to net cash of US$3.99b.

How Strong Is Grab Holdings' Balance Sheet?

The latest balance sheet data shows that Grab Holdings had liabilities of US$1.48b due within a year, and liabilities of US$384.0m falling due after that. Offsetting these obligations, it had cash of US$4.29b as well as receivables valued at US$495.0m due within 12 months. 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. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Grab Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

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?

While Grab Holdings lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow 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. We think its revenue growth of 44% is a good sign. We'd see further strong growth as an optimistic indication. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Grab Holdings's profit, revenue, and operating cashflow have changed over the last few years.

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.