BCM Alliance Berhad (KLSE:BCMALL) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies BCM Alliance Berhad (KLSE:BCMALL) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for BCM Alliance Berhad

How Much Debt Does BCM Alliance Berhad Carry?

As you can see below, BCM Alliance Berhad had RM10.4m of debt, at March 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has RM28.8m in cash to offset that, meaning it has RM18.4m net cash.

A Look At BCM Alliance Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that BCM Alliance Berhad had liabilities of RM38.9m due within 12 months and liabilities of RM8.79m due beyond that. Offsetting these obligations, it had cash of RM28.8m as well as receivables valued at RM93.8m due within 12 months. So it actually has RM74.9m more liquid assets than total liabilities.

This surplus strongly suggests that BCM Alliance Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, BCM Alliance 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 it is BCM Alliance Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year BCM Alliance Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to RM91m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is BCM Alliance Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that BCM Alliance Berhad had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of RM13m and booked a RM14m accounting loss. Given it only has net cash of RM18.4m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. We've identified 3 warning signs with BCM Alliance Berhad , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.