Would Pasukhas Group Berhad (KLSE:PASUKGB) Be Better Off With Less Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Pasukhas Group Berhad (KLSE:PASUKGB) does use debt in its business. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Pasukhas Group Berhad

What Is Pasukhas Group Berhad's Debt?

As you can see below, Pasukhas Group Berhad had RM19.1m of debt at December 2020, down from RM41.3m a year prior. However, because it has a cash reserve of RM17.9m, its net debt is less, at about RM1.26m.

How Healthy Is Pasukhas Group Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Pasukhas Group Berhad had liabilities of RM38.5m due within 12 months and liabilities of RM15.0m due beyond that. Offsetting these obligations, it had cash of RM17.9m as well as receivables valued at RM56.7m due within 12 months. So it actually has RM21.0m more liquid assets than total liabilities.

This surplus liquidity suggests that Pasukhas Group Berhad's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. There's no doubt that we learn most about debt from the balance sheet. But it is Pasukhas Group Berhad'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, Pasukhas Group Berhad made a loss at the EBIT level, and saw its revenue drop to RM11m, which is a fall of 63%. To be frank that doesn't bode well.

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. Its EBIT loss was a whopping RM9.0m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd be more likely to spend time trying to understand the stock if the company made a profit. This one is a bit too risky for our liking. 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. To that end, you should learn about the 5 warning signs we've spotted with Pasukhas Group Berhad (including 2 which are a bit unpleasant) .

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.

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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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