Is PRG Holdings Berhad (KLSE:PRG) Using Debt Sensibly?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 can see that PRG Holdings Berhad (KLSE:PRG) does use debt in its business. But is this debt a concern to shareholders?

We've discovered 2 warning signs about PRG Holdings Berhad. View them for free.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does PRG Holdings Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that PRG Holdings Berhad had RM45.9m of debt in December 2024, down from RM61.9m, one year before. But it also has RM77.2m in cash to offset that, meaning it has RM31.4m net cash.

How Strong Is PRG Holdings Berhad's Balance Sheet?

The latest balance sheet data shows that PRG Holdings Berhad had liabilities of RM131.3m due within a year, and liabilities of RM46.2m falling due after that. Offsetting this, it had RM77.2m in cash and RM94.1m in receivables that were due within 12 months. So it has liabilities totalling RM6.15m more than its cash and near-term receivables, combined.

Of course, PRG Holdings Berhad has a market capitalization of RM43.9m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, PRG Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since PRG Holdings 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.

View our latest analysis for PRG Holdings Berhad

Over 12 months, PRG Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM280m, which is a fall of 23%. That makes us nervous, to say the least.

So How Risky Is PRG Holdings Berhad?

While PRG Holdings Berhad lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM34m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. Case in point: We've spotted 2 warning signs for PRG Holdings Berhad you should be aware of.

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.