Is AwanBiru Technology Berhad (KLSE:AWANTEC) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies AwanBiru Technology Berhad (KLSE:AWANTEC) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for AwanBiru Technology Berhad

What Is AwanBiru Technology Berhad's Debt?

As you can see below, AwanBiru Technology Berhad had RM19.4m of debt at March 2022, down from RM32.6m a year prior. But it also has RM28.4m in cash to offset that, meaning it has RM9.01m net cash.

How Healthy Is AwanBiru Technology Berhad's Balance Sheet?

We can see from the most recent balance sheet that AwanBiru Technology Berhad had liabilities of RM220.5m falling due within a year, and liabilities of RM32.4m due beyond that. Offsetting this, it had RM28.4m in cash and RM371.3m in receivables that were due within 12 months. So it actually has RM146.7m more liquid assets than total liabilities.

This surplus liquidity suggests that AwanBiru Technology Berhad's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that AwanBiru Technology Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if AwanBiru Technology Berhad can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, AwanBiru Technology Berhad made a loss at the EBIT level, and saw its revenue drop to RM81m, which is a fall of 50%. That makes us nervous, to say the least.

So How Risky Is AwanBiru Technology Berhad?

While AwanBiru Technology Berhad lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of RM4.0m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that AwanBiru Technology Berhad is showing 3 warning signs in our investment analysis , 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.