Does Hibiscus Petroleum Berhad (KLSE:HIBISCS) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Hibiscus Petroleum Berhad (KLSE:HIBISCS) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Hibiscus Petroleum Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Hibiscus Petroleum Berhad had RM485.7m of debt, an increase on RM394.8m, over one year. But on the other hand it also has RM584.6m in cash, leading to a RM98.9m net cash position.

How Strong Is Hibiscus Petroleum Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hibiscus Petroleum Berhad had liabilities of RM2.08b due within 12 months and liabilities of RM2.68b due beyond that. Offsetting these obligations, it had cash of RM584.6m as well as receivables valued at RM713.2m due within 12 months. So its liabilities total RM3.47b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the RM1.30b 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 definitely think shareholders need to watch this one closely. At the end of the day, Hibiscus Petroleum Berhad would probably need a major re-capitalization if its creditors were to demand repayment. Hibiscus Petroleum Berhad boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total.

View our latest analysis for Hibiscus Petroleum Berhad

On the other hand, Hibiscus Petroleum Berhad saw its EBIT drop by 8.7% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Hibiscus Petroleum Berhad can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Hibiscus Petroleum Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Hibiscus Petroleum Berhad's free cash flow amounted to 44% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

Although Hibiscus Petroleum Berhad's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of RM98.9m. Despite the cash, we do find Hibiscus Petroleum Berhad's level of total liabilities concerning, so we're not particularly comfortable with the stock. 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. For example - Hibiscus Petroleum Berhad has 2 warning signs we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.