Is Bina Puri Holdings Bhd (KLSE:BPURI) A Risky Investment?

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. We can see that Bina Puri Holdings Bhd (KLSE:BPURI) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. 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, 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 step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Bina Puri Holdings Bhd

What Is Bina Puri Holdings Bhd's Net Debt?

As you can see below, Bina Puri Holdings Bhd had RM425.2m of debt, at June 2021, which is about the same as the year before. You can click the chart for greater detail. However, it also had RM32.1m in cash, and so its net debt is RM393.1m.

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 RM775.2m falling due within a year, and liabilities of RM219.8m due beyond that. Offsetting these obligations, it had cash of RM32.1m as well as receivables valued at RM677.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM285.7m.

The deficiency here weighs heavily on the RM70.0m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is Bina Puri Holdings Bhd'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, Bina Puri Holdings Bhd made a loss at the EBIT level, and saw its revenue drop to RM223m, which is a fall of 47%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Bina Puri Holdings Bhd's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping RM44m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized RM6.4m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. 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. To that end, you should learn about the 4 warning signs we've spotted with Bina Puri Holdings Bhd (including 2 which are a bit concerning) .

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.