Does Advance Synergy Berhad (KLSE:ASB) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Advance Synergy Berhad (KLSE:ASB) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Advance Synergy Berhad

What Is Advance Synergy Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2023 Advance Synergy Berhad had RM137.6m of debt, an increase on RM108.8m, over one year. But on the other hand it also has RM141.5m in cash, leading to a RM3.89m net cash position.

How Strong Is Advance Synergy Berhad's Balance Sheet?

We can see from the most recent balance sheet that Advance Synergy Berhad had liabilities of RM126.3m falling due within a year, and liabilities of RM137.4m due beyond that. Offsetting this, it had RM141.5m in cash and RM102.9m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM19.3m.

Of course, Advance Synergy Berhad has a market capitalization of RM392.0m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Advance Synergy Berhad 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 you can't view debt in total isolation; since Advance Synergy Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Advance Synergy Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 118%, to RM287m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Advance Synergy Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Advance Synergy Berhad lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through RM13m of cash and made a loss of RM32m. With only RM3.89m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, Advance Synergy Berhad's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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 4 warning signs for Advance Synergy Berhad you should be aware of, and 2 of them can't be ignored.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.