We Think PPB Group Berhad (KLSE:PPB) Has A Fair Chunk Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for PPB Group Berhad

What Is PPB Group Berhad's Debt?

As you can see below, at the end of March 2022, PPB Group Berhad had RM1.51b of debt, up from RM575.3m a year ago. Click the image for more detail. However, it also had RM1.45b in cash, and so its net debt is RM66.6m.

A Look At PPB Group Berhad's Liabilities

According to the last reported balance sheet, PPB Group Berhad had liabilities of RM2.12b due within 12 months, and liabilities of RM548.5m due beyond 12 months. Offsetting these obligations, it had cash of RM1.45b as well as receivables valued at RM1.24b due within 12 months. So these liquid assets roughly match the total liabilities.

Having regard to PPB Group Berhad's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the RM21.3b company is short on cash, but still worth keeping an eye on the balance sheet. But either way, PPB Group Berhad has virtually no net debt, 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.

Over 12 months, PPB Group Berhad reported revenue of RM5.1b, which is a gain of 21%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate PPB Group Berhad's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at RM3.1m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. So it seems too risky for our taste. 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. Be aware that PPB Group Berhad is showing 1 warning sign in our investment analysis , you should know about...

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.