Does Pasukhas Group Berhad (KLSE:PASUKGB) 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.' 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. As with many other companies Pasukhas Group Berhad (KLSE:PASUKGB) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Pasukhas Group Berhad

What Is Pasukhas Group Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that Pasukhas Group Berhad had debt of RM12.0m at the end of June 2024, a reduction from RM13.8m over a year. On the flip side, it has RM9.24m in cash leading to net debt of about RM2.75m.

How Healthy Is Pasukhas Group Berhad's Balance Sheet?

The latest balance sheet data shows that Pasukhas Group Berhad had liabilities of RM45.1m due within a year, and liabilities of RM8.74m falling due after that. Offsetting this, it had RM9.24m in cash and RM112.9m in receivables that were due within 12 months. So it actually has RM68.3m more liquid assets than total liabilities.

This surplus strongly suggests that Pasukhas Group Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Pasukhas Group Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Pasukhas Group Berhad had a loss before interest and tax, and actually shrunk its revenue by 19%, to RM75m. We would much prefer see growth.

Caveat Emptor

While Pasukhas Group 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 RM14m at the EBIT level. Having said that, the balance sheet has plenty of liquid assets for now. That will give the company some time and space to grow and develop its business as need be. 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Pasukhas Group Berhad .

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.