We Think Econpile Holdings Berhad (KLSE:ECONBHD) Has A Fair Chunk Of Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Econpile Holdings Berhad (KLSE:ECONBHD) does use debt in its business. 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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Econpile Holdings Berhad

What Is Econpile Holdings Berhad's Net Debt?

As you can see below, Econpile Holdings Berhad had RM97.0m of debt at March 2023, down from RM117.0m a year prior. However, it also had RM48.2m in cash, and so its net debt is RM48.8m.

How Healthy Is Econpile Holdings Berhad's Balance Sheet?

We can see from the most recent balance sheet that Econpile Holdings Berhad had liabilities of RM218.0m falling due within a year, and liabilities of RM27.6m due beyond that. On the other hand, it had cash of RM48.2m and RM546.3m worth of receivables due within a year. So it actually has RM348.9m more liquid assets than total liabilities.

This surplus liquidity suggests that Econpile Holdings Berhad's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Econpile Holdings Berhad can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Econpile Holdings Berhad saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months Econpile Holdings Berhad produced an earnings before interest and tax (EBIT) loss. Indeed, it lost RM7.0m at the EBIT level. That said, we're impressed with the strong balance sheet liquidity. That should give the business time to grow its cashflow. While the stock is probably a bit risky, there may be an opportunity if the business itself improves, allowing the company to stage a recovery. 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. We've identified 2 warning signs with Econpile Holdings Berhad , and understanding them should be part of your investment process.

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.