Is BCM Alliance Berhad (KLSE:BCMALL) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 BCM Alliance Berhad (KLSE:BCMALL) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for BCM Alliance Berhad

What Is BCM Alliance Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2023 BCM Alliance Berhad had debt of RM10.1m, up from RM8.74m in one year. But it also has RM37.4m in cash to offset that, meaning it has RM27.3m net cash.

How Healthy Is BCM Alliance Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BCM Alliance Berhad had liabilities of RM24.7m due within 12 months and liabilities of RM8.48m due beyond that. On the other hand, it had cash of RM37.4m and RM77.6m worth of receivables due within a year. So it can boast RM81.8m 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). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, BCM Alliance Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. 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 9.5%, to RM97m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is BCM Alliance Berhad?

Although BCM Alliance Berhad had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of RM6.2m. 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. There's no doubt the next few years will be crucial to how the business matures. 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 3 warning signs for BCM Alliance Berhad that you should be aware of before investing here.

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.