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

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.' 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. As with many other companies PPB Group Berhad (KLSE:PPB) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for PPB Group Berhad

How Much Debt Does PPB Group Berhad Carry?

The image below, which you can click on for greater detail, shows that at December 2022 PPB Group Berhad had debt of RM1.35b, up from RM1.10b in one year. But on the other hand it also has RM1.59b in cash, leading to a RM239.8m net cash position.

How Healthy 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 RM1.80b due within 12 months and liabilities of RM568.4m due beyond that. Offsetting this, it had RM1.59b in cash and RM1.17b in receivables that were due within 12 months. So it can boast RM397.7m more liquid assets than total liabilities.

Having regard to PPB Group Berhad's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the RM23.7b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, PPB Group Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

Pleasingly, PPB Group Berhad is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 8,230% gain in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While PPB Group Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, PPB Group Berhad saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that PPB Group Berhad has net cash of RM239.8m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 8,230% over the last year. So we are not troubled with PPB Group Berhad's debt use. 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. We've identified 1 warning sign with PPB Group Berhad , 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.