Pasdec Holdings Berhad (KLSE:PASDEC) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Pasdec Holdings Berhad (KLSE:PASDEC) does have debt on its balance sheet. 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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Our analysis indicates that PASDEC is potentially undervalued!

What Is Pasdec Holdings Berhad's Debt?

As you can see below, Pasdec Holdings Berhad had RM11.7m of debt at September 2022, down from RM16.2m a year prior. But it also has RM25.7m in cash to offset that, meaning it has RM14.0m net cash.

How Healthy Is Pasdec Holdings Berhad's Balance Sheet?

We can see from the most recent balance sheet that Pasdec Holdings Berhad had liabilities of RM33.4m falling due within a year, and liabilities of RM8.00m due beyond that. On the other hand, it had cash of RM25.7m and RM14.2m worth of receivables due within a year. So its liabilities total RM1.48m more than the combination of its cash and short-term receivables.

This state of affairs indicates that Pasdec Holdings Berhad's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the RM132.1m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Pasdec Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Pasdec Holdings Berhad will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Pasdec Holdings Berhad had a loss before interest and tax, and actually shrunk its revenue by 42%, to RM28m. To be frank that doesn't bode well.

So How Risky Is Pasdec Holdings Berhad?

Although Pasdec Holdings Berhad had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of RM2.2m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Pasdec Holdings Berhad you should be aware of.

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.