Is TAS Offshore Berhad (KLSE:TAS) 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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies TAS Offshore Berhad (KLSE:TAS) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

See our latest analysis for TAS Offshore Berhad

How Much Debt Does TAS Offshore Berhad Carry?

As you can see below, TAS Offshore Berhad had RM11.7m of debt at February 2021, down from RM21.9m a year prior. However, it does have RM5.69m in cash offsetting this, leading to net debt of about RM6.02m.

How Strong Is TAS Offshore Berhad's Balance Sheet?

According to the last reported balance sheet, TAS Offshore Berhad had liabilities of RM23.8m due within 12 months, and liabilities of RM10.6m due beyond 12 months. Offsetting these obligations, it had cash of RM5.69m as well as receivables valued at RM11.1m due within 12 months. So it has liabilities totalling RM17.7m more than its cash and near-term receivables, combined.

TAS Offshore Berhad has a market capitalization of RM57.7m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is TAS Offshore 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.

In the last year TAS Offshore Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 37%, to RM24m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, TAS Offshore Berhad still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable RM71m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled RM3.2m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with TAS Offshore Berhad (including 2 which are potentially serious) .

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.

If you're looking for stocks to buy, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.