Is Southern Score Builders Berhad (KLSE:SSB8) A Risky Investment?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Southern Score Builders Berhad (KLSE:SSB8) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Southern Score Builders Berhad Carry?

As you can see below, Southern Score Builders Berhad had RM12.2m of debt at March 2025, down from RM15.1m a year prior. However, it does have RM43.6m in cash offsetting this, leading to net cash of RM31.4m.

How Healthy Is Southern Score Builders Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Southern Score Builders Berhad had liabilities of RM92.8m due within 12 months and liabilities of RM222.0k due beyond that. On the other hand, it had cash of RM43.6m and RM195.6m worth of receivables due within a year. So it actually has RM146.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Southern Score Builders Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Southern Score Builders Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Southern Score Builders Berhad

In addition to that, we're happy to report that Southern Score Builders Berhad has boosted its EBIT by 41%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Southern Score Builders Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Southern Score Builders Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Southern Score Builders Berhad reported free cash flow worth 8.2% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Southern Score Builders Berhad has net cash of RM31.4m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 41% over the last year. So we don't think Southern Score Builders Berhad's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Southern Score Builders Berhad's earnings per share history for free.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.