TSR Capital Berhad (KLSE:TSRCAP) Is Carrying A Fair Bit 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. We can see that TSR Capital Berhad (KLSE:TSRCAP) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

View our latest analysis for TSR Capital Berhad

How Much Debt Does TSR Capital Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that TSR Capital Berhad had RM24.9m of debt in March 2022, down from RM35.2m, one year before. However, because it has a cash reserve of RM3.34m, its net debt is less, at about RM21.6m.

A Look At TSR Capital Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that TSR Capital Berhad had liabilities of RM87.2m due within 12 months and liabilities of RM6.62m due beyond that. Offsetting this, it had RM3.34m in cash and RM76.8m in receivables that were due within 12 months. So it has liabilities totalling RM13.7m more than its cash and near-term receivables, combined.

This deficit isn't so bad because TSR Capital Berhad is worth RM36.6m, and thus could probably raise enough capital to shore up 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 TSR Capital 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.

Over 12 months, TSR Capital Berhad made a loss at the EBIT level, and saw its revenue drop to RM39m, which is a fall of 49%. That makes us nervous, to say the least.

Caveat Emptor

While TSR Capital Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping RM35m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of RM35m into a profit. In the meantime, we consider the stock very risky. 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 TSR Capital Berhad has 3 warning signs (and 2 which can't be ignored) 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.