Does PPB Group Berhad (KLSE:PPB) Have A Healthy Balance Sheet?

Simply Wall St
November 30, 2021
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Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 PPB Group Berhad (KLSE:PPB) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for PPB Group Berhad

What Is PPB Group Berhad's Debt?

As you can see below, at the end of June 2021, PPB Group Berhad had RM942.5m of debt, up from RM530.8m a year ago. Click the image for more detail. But on the other hand it also has RM1.36b in cash, leading to a RM421.5m net cash position.

KLSE:PPB Debt to Equity History December 1st 2021

How Strong Is PPB Group Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that PPB Group Berhad had liabilities of RM1.50b due within 12 months and liabilities of RM420.0m due beyond that. Offsetting this, it had RM1.36b in cash and RM1.20b in receivables that were due within 12 months. So it can boast RM639.5m more liquid assets than total liabilities.

This surplus suggests that PPB Group Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, PPB Group Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! 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 PPB Group 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.

In the last year PPB Group Berhad's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is PPB Group Berhad?

Although PPB Group Berhad had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of RM1.4b. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. Case in point: We've spotted 1 warning sign for PPB Group Berhad you should be aware of.

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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