These 4 Measures Indicate That PPB Group Berhad (KLSE:PPB) Is Using Debt Safely

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.' 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. Importantly, PPB Group Berhad (KLSE:PPB) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is PPB Group Berhad's Net Debt?

As you can see below, PPB Group Berhad had RM305.2m of debt at March 2025, down from RM506.5m a year prior. But it also has RM1.76b in cash to offset that, meaning it has RM1.46b net cash.

How Strong Is PPB Group Berhad's Balance Sheet?

According to the last reported balance sheet, PPB Group Berhad had liabilities of RM876.6m due within 12 months, and liabilities of RM589.6m due beyond 12 months. Offsetting these obligations, it had cash of RM1.76b as well as receivables valued at RM907.0m due within 12 months. So it actually has RM1.20b more liquid assets than total liabilities.

This short term liquidity is a sign that PPB Group Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, PPB Group Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for PPB Group Berhad

PPB Group Berhad's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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 recorded free cash flow worth a fulsome 94% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that PPB Group Berhad has net cash of RM1.46b, as well as more liquid assets than liabilities. The cherry on top was that in converted 94% of that EBIT to free cash flow, bringing in RM207m. So is PPB Group Berhad's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for PPB Group Berhad 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.