Is AT Systematization Berhad (KLSE:AT) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 AT Systematization Berhad (KLSE:AT) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for AT Systematization Berhad

What Is AT Systematization Berhad's Debt?

The image below, which you can click on for greater detail, shows that AT Systematization Berhad had debt of RM31.8m at the end of June 2023, a reduction from RM75.3m over a year. But on the other hand it also has RM57.0m in cash, leading to a RM25.2m net cash position.

A Look At AT Systematization Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that AT Systematization Berhad had liabilities of RM81.8m due within 12 months and liabilities of RM6.67m due beyond that. Offsetting these obligations, it had cash of RM57.0m as well as receivables valued at RM11.0m due within 12 months. So it has liabilities totalling RM20.5m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of RM33.9m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. While it does have liabilities worth noting, AT Systematization Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is AT Systematization Berhad's earnings that will influence how the balance sheet holds up in the future. 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.

Over 12 months, AT Systematization Berhad made a loss at the EBIT level, and saw its revenue drop to RM52m, which is a fall of 23%. That makes us nervous, to say the least.

So How Risky Is AT Systematization Berhad?

While AT Systematization Berhad lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM15m. 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. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for AT Systematization Berhad (3 are a bit unpleasant!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.