Does Bintai Kinden Corporation Berhad (KLSE:BINTAI) Have A Healthy Balance Sheet?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Bintai Kinden Corporation Berhad (KLSE:BINTAI) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Bintai Kinden Corporation Berhad

What Is Bintai Kinden Corporation Berhad's Debt?

As you can see below, Bintai Kinden Corporation Berhad had RM148.6m of debt, at March 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have RM5.68m in cash offsetting this, leading to net debt of about RM142.9m.

How Healthy Is Bintai Kinden Corporation Berhad's Balance Sheet?

We can see from the most recent balance sheet that Bintai Kinden Corporation Berhad had liabilities of RM183.2m falling due within a year, and liabilities of RM8.52m due beyond that. Offsetting these obligations, it had cash of RM5.68m as well as receivables valued at RM98.4m due within 12 months. So it has liabilities totalling RM87.6m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of RM71.5m, we think shareholders really should watch Bintai Kinden Corporation Berhad's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But it is Bintai Kinden Corporation 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, Bintai Kinden Corporation Berhad reported revenue of RM116m, which is a gain of 20%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate Bintai Kinden Corporation Berhad's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Its EBIT loss was a whopping RM107m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of RM1.0m over the last twelve months. That means it's on the risky side of things. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Bintai Kinden Corporation Berhad is showing 4 warning signs in our investment analysis , and 2 of those are potentially serious...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.