Does Berjaya Corporation Berhad (KLSE:BJCORP) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Berjaya Corporation Berhad (KLSE:BJCORP) does use debt in its business. 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. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Berjaya Corporation Berhad

How Much Debt Does Berjaya Corporation Berhad Carry?

As you can see below, Berjaya Corporation Berhad had RM4.99b of debt at September 2020, down from RM5.91b a year prior. However, it does have RM1.68b in cash offsetting this, leading to net debt of about RM3.31b.

How Strong Is Berjaya Corporation Berhad's Balance Sheet?

The latest balance sheet data shows that Berjaya Corporation Berhad had liabilities of RM5.09b due within a year, and liabilities of RM6.49b falling due after that. On the other hand, it had cash of RM1.68b and RM2.19b worth of receivables due within a year. So its liabilities total RM7.72b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the RM925.4m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Berjaya Corporation Berhad would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Berjaya Corporation 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.

Over 12 months, Berjaya Corporation Berhad made a loss at the EBIT level, and saw its revenue drop to RM6.9b, which is a fall of 15%. We would much prefer see growth.

Caveat Emptor

While Berjaya Corporation Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable RM267m at the EBIT level. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost RM117m in the last year. So we think buying this stock is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Berjaya Corporation Berhad you should know about.

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.

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This article by Simply Wall St is general in nature. 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.
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