Is Berjaya Food Berhad (KLSE:BJFOOD) A Risky Investment?

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. Importantly, Berjaya Food Berhad (KLSE:BJFOOD) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Berjaya Food Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Berjaya Food Berhad had debt of RM334.8m, up from RM286.5m in one year. However, it also had RM30.9m in cash, and so its net debt is RM304.0m.

How Healthy Is Berjaya Food Berhad's Balance Sheet?

We can see from the most recent balance sheet that Berjaya Food Berhad had liabilities of RM642.8m falling due within a year, and liabilities of RM370.4m due beyond that. On the other hand, it had cash of RM30.9m and RM75.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM907.0m.

The deficiency here weighs heavily on the RM567.0m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Berjaya Food Berhad would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Berjaya Food Berhad's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

View our latest analysis for Berjaya Food Berhad

Over 12 months, Berjaya Food Berhad made a loss at the EBIT level, and saw its revenue drop to RM512m, which is a fall of 41%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Berjaya Food Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable RM76m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of RM144m. In the meantime, we consider the stock to be risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Berjaya Food Berhad 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.