Does Bina Puri Holdings Bhd (KLSE:BPURI) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Bina Puri Holdings Bhd (KLSE:BPURI) makes use of debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Bina Puri Holdings Bhd's Net Debt?

As you can see below, Bina Puri Holdings Bhd had RM326.9m of debt at December 2024, down from RM343.6m a year prior. However, because it has a cash reserve of RM22.5m, its net debt is less, at about RM304.4m.

A Look At Bina Puri Holdings Bhd's Liabilities

We can see from the most recent balance sheet that Bina Puri Holdings Bhd had liabilities of RM424.9m falling due within a year, and liabilities of RM223.8m due beyond that. Offsetting these obligations, it had cash of RM22.5m as well as receivables valued at RM302.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM323.9m.

This deficit casts a shadow over the RM214.9m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Bina Puri Holdings Bhd would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Bina Puri Holdings Bhd'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.

View our latest analysis for Bina Puri Holdings Bhd

Over 12 months, Bina Puri Holdings Bhd reported revenue of RM193m, which is a gain of 67%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Bina Puri Holdings Bhd's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost RM18m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through RM17m in negative free cash flow over the last year. That means it's on the risky side of things. 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. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Bina Puri Holdings Bhd (of which 1 is potentially serious!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.