TAS Offshore Berhad (KLSE:TAS) Has A Somewhat Strained Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, TAS Offshore Berhad (KLSE:TAS) does carry debt. But the real question is whether this debt is making the company risky.

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for TAS Offshore Berhad

What Is TAS Offshore Berhad's Debt?

As you can see below, at the end of August 2023, TAS Offshore Berhad had RM9.43m of debt, up from RM5.65m a year ago. Click the image for more detail. But on the other hand it also has RM25.0m in cash, leading to a RM15.5m net cash position.

How Healthy Is TAS Offshore Berhad's Balance Sheet?

According to the last reported balance sheet, TAS Offshore Berhad had liabilities of RM65.0m due within 12 months, and liabilities of RM3.74m due beyond 12 months. Offsetting these obligations, it had cash of RM25.0m as well as receivables valued at RM17.1m due within 12 months. So it has liabilities totalling RM26.6m more than its cash and near-term receivables, combined.

This deficit isn't so bad because TAS Offshore Berhad is worth RM60.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, TAS Offshore Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely.

It was also good to see that despite losing money on the EBIT line last year, TAS Offshore Berhad turned things around in the last 12 months, delivering and EBIT of RM16m. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since TAS Offshore 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While TAS Offshore Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last year, TAS Offshore Berhad burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

Although TAS Offshore Berhad's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of RM15.5m. So while TAS Offshore Berhad does not have a great balance sheet, it's certainly not too bad. 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. For example, we've discovered 3 warning signs for TAS Offshore Berhad (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.