Does YB Ventures Berhad (KLSE:YB) Have A Healthy Balance Sheet?

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. We can see that YB Ventures Berhad (KLSE:YB) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 YB Ventures Berhad

How Much Debt Does YB Ventures Berhad Carry?

As you can see below, YB Ventures Berhad had RM22.3m of debt at December 2024, down from RM23.4m a year prior. However, it also had RM9.63m in cash, and so its net debt is RM12.7m.

A Look At YB Ventures Berhad's Liabilities

The latest balance sheet data shows that YB Ventures Berhad had liabilities of RM34.0m due within a year, and liabilities of RM22.8m falling due after that. Offsetting this, it had RM9.63m in cash and RM21.2m in receivables that were due within 12 months. So its liabilities total RM25.9m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of RM30.6m, so it does suggest shareholders should keep an eye on YB Ventures Berhad's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since YB Ventures Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year YB Ventures Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 5.7%, to RM67m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, YB Ventures Berhad had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable RM27m 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled RM8.8m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for YB Ventures Berhad (of which 3 don't sit too well with us!) 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.