PLS Plantations Berhad (KLSE:PLS) Is Carrying A Fair Bit Of Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that PLS Plantations Berhad (KLSE:PLS) does use debt in its business. But should shareholders be worried about its use of debt?

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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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does PLS Plantations Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that PLS Plantations Berhad had RM64.7m of debt in December 2024, down from RM91.7m, one year before. However, it also had RM9.06m in cash, and so its net debt is RM55.6m.

A Look At PLS Plantations Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that PLS Plantations Berhad had liabilities of RM60.1m due within 12 months and liabilities of RM114.3m due beyond that. Offsetting these obligations, it had cash of RM9.06m as well as receivables valued at RM56.2m due within 12 months. So its liabilities total RM109.2m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because PLS Plantations Berhad is worth RM193.4m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is PLS Plantations Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for PLS Plantations Berhad

In the last year PLS Plantations Berhad's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, PLS Plantations Berhad had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at RM3.0m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of RM9.9m into a profit. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for PLS Plantations Berhad (of which 2 can't be ignored!) 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.