David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. We note that PPB Berhad Group (KLSE:PPB) has debt on its balance sheet. But does this debt worry shareholders?
When is debt dangerous?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. The first thing to do when considering how much debt a business has is to look at its cash and debt together.
See our latest analysis for PPB Group Berhad
What is the debt of PPB Group Berhad?
As you can see below, at the end of March 2022, PPB Group Berhad had debt of RM1.51 billion, up from RM575.3 million a year ago. Click on the image for more details. However, he also had RM1.45 billion in cash, so his net debt is RM66.6 million.
A look at the liabilities of PPB Group Berhad
According to the latest published balance sheet, PPB Group Berhad had liabilities of RM2.12 billion due within 12 months and liabilities of RM548.5 million due beyond 12 months. As compensation for these obligations, it had cash of RM1.45 billion and receivables valued at RM1.24 billion due within 12 months. These liquid assets therefore roughly correspond to the total liabilities.
Given the size of PPB Group Berhad, it appears that its cash is well balanced against its total liabilities. It is therefore very unlikely that the RM21.3b company will run out of cash, but it is still worth keeping an eye on the balance sheet. Anyway, PPB Group Berhad has virtually no net debt, so it’s fair to say that it doesn’t have a lot of debt! There is no doubt that we learn the most about debt from the balance sheet. But it is future earnings, more than anything, that will determine PPB Group Berhad’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
Year-over-year, PPB Group Berhad reported revenue of RM5.1 billion, a 21% gain, although it reported no earnings before interest and tax. The shareholders probably have their fingers crossed that she can make a profit.
Caveat Emptor
While we can certainly appreciate PPB Group Berhad’s revenue growth, its earnings before interest and tax (EBIT) loss is less than ideal. To be precise, the EBIT loss amounted to RM3.1 million. On a more positive note, the company has cash, so it has some time to improve its operations before debt becomes an acute problem. Still, we would be more encouraged to study the business in depth if it already had free cash flow. So it seems too risky for our taste. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks reside on the balance sheet, far from it. Be aware that PPB Group Berhad displays 1 warning sign in our investment analysis you should know…
If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-flowing growth stocks without further ado.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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