We Think Taghill Holdings Berhad (KLSE:SIAB) Has A Fair Chunk Of Debt

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. Importantly, Taghill Holdings Berhad (KLSE:SIAB) does carry debt. 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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Taghill Holdings Berhad

How Much Debt Does Taghill Holdings Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Taghill Holdings Berhad had RM174.0m of debt, an increase on RM39.1m, over one year. However, because it has a cash reserve of RM41.5m, its net debt is less, at about RM132.5m.

A Look At Taghill Holdings Berhad's Liabilities

We can see from the most recent balance sheet that Taghill Holdings Berhad had liabilities of RM460.3m falling due within a year, and liabilities of RM36.8m due beyond that. Offsetting these obligations, it had cash of RM41.5m as well as receivables valued at RM488.0m due within 12 months. So it actually has RM32.4m more liquid assets than total liabilities.

It's good to see that Taghill Holdings Berhad has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Taghill Holdings Berhad will need earnings to service that debt. 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, Taghill Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM163m, which is a fall of 11%. We would much prefer see growth.

Caveat Emptor

Not only did Taghill Holdings Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost RM14m at the EBIT level. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. 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. For example Taghill Holdings Berhad has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.

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. 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.