Does Bioalpha Holdings Berhad (KLSE:BIOHLDG) Have A Healthy Balance Sheet?

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. As with many other companies Bioalpha Holdings Berhad (KLSE:BIOHLDG) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

View our latest analysis for Bioalpha Holdings Berhad

What Is Bioalpha Holdings Berhad's Net Debt?

The chart below, which you can click on for greater detail, shows that Bioalpha Holdings Berhad had RM8.26m in debt in June 2022; about the same as the year before. However, it does have RM55.7m in cash offsetting this, leading to net cash of RM47.5m.

A Look At Bioalpha Holdings Berhad's Liabilities

The latest balance sheet data shows that Bioalpha Holdings Berhad had liabilities of RM11.5m due within a year, and liabilities of RM14.2m falling due after that. Offsetting this, it had RM55.7m in cash and RM38.8m in receivables that were due within 12 months. So it actually has RM68.9m more liquid assets than total liabilities.

This surplus strongly suggests that Bioalpha Holdings Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Bioalpha Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Bioalpha Holdings Berhad's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Bioalpha Holdings Berhad had a loss before interest and tax, and actually shrunk its revenue by 24%, to RM59m. That makes us nervous, to say the least.

So How Risky Is Bioalpha Holdings Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Bioalpha Holdings Berhad had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through RM16m of cash and made a loss of RM16m. Given it only has net cash of RM47.5m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. For example, we've discovered 4 warning signs for Bioalpha Holdings Berhad (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.