Is Pintaras Jaya Berhad (KLSE:PTARAS) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 Pintaras Jaya Berhad (KLSE:PTARAS) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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, 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Pintaras Jaya Berhad

What Is Pintaras Jaya Berhad's Net Debt?

As you can see below, at the end of March 2024, Pintaras Jaya Berhad had RM7.73m of debt, up from RM3.51m a year ago. Click the image for more detail. But on the other hand it also has RM144.6m in cash, leading to a RM136.9m net cash position.

How Strong Is Pintaras Jaya Berhad's Balance Sheet?

We can see from the most recent balance sheet that Pintaras Jaya Berhad had liabilities of RM108.1m falling due within a year, and liabilities of RM22.6m due beyond that. Offsetting this, it had RM144.6m in cash and RM171.4m in receivables that were due within 12 months. So it actually has RM185.3m more liquid assets than total liabilities.

This surplus liquidity suggests that Pintaras Jaya Berhad's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Pintaras Jaya Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Pintaras Jaya Berhad's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Pintaras Jaya Berhad made a loss at the EBIT level, and saw its revenue drop to RM291m, which is a fall of 21%. To be frank that doesn't bode well.

So How Risky Is Pintaras Jaya Berhad?

While Pintaras Jaya Berhad lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM16m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The next few years will be important as the business matures. 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. We've identified 2 warning signs with Pintaras Jaya Berhad , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.

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