Does Olympia Industries Berhad (KLSE:OLYMPIA) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, Olympia Industries Berhad (KLSE:OLYMPIA) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Olympia Industries Berhad

How Much Debt Does Olympia Industries Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Olympia Industries Berhad had RM140.0m of debt, an increase on RM127.0m, over one year. However, it also had RM27.6m in cash, and so its net debt is RM112.4m.

A Look At Olympia Industries Berhad's Liabilities

According to the last reported balance sheet, Olympia Industries Berhad had liabilities of RM90.3m due within 12 months, and liabilities of RM137.9m due beyond 12 months. Offsetting this, it had RM27.6m in cash and RM7.62m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM193.0m.

This deficit casts a shadow over the RM76.8m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Olympia Industries Berhad would likely require a major re-capitalisation if it had to pay its creditors today. 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 Olympia Industries Berhad will need earnings to service that debt. 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.

In the last year Olympia Industries Berhad had a loss before interest and tax, and actually shrunk its revenue by 5.4%, to RM86m. We would much prefer see growth.

Caveat Emptor

Importantly, Olympia Industries Berhad had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at RM6.9m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely, given it is low on liquid assets, and burned through RM3.0m in the last year. So we think this stock is risky, like walking through a dirty dog park with a mask on. 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. We've identified 2 warning signs with Olympia Industries Berhad (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.