Is Bioalpha Holdings Berhad (KLSE:BIOHLDG) A Risky Investment?

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.' 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?

What Risk Does Debt Bring?

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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Bioalpha Holdings Berhad

How Much Debt Does Bioalpha Holdings Berhad Carry?

As you can see below, Bioalpha Holdings Berhad had RM6.95m of debt at December 2022, down from RM9.34m a year prior. However, it does have RM47.7m in cash offsetting this, leading to net cash of RM40.7m.

How Healthy Is Bioalpha Holdings Berhad's Balance Sheet?

According to the last reported balance sheet, Bioalpha Holdings Berhad had liabilities of RM14.7m due within 12 months, and liabilities of RM14.7m due beyond 12 months. Offsetting these obligations, it had cash of RM47.7m as well as receivables valued at RM24.3m due within 12 months. So it actually has RM42.5m more liquid assets than total liabilities.

This excess liquidity suggests that Bioalpha Holdings Berhad is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Bioalpha Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Bioalpha Holdings Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Bioalpha Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM36m, which is a fall of 63%. That makes us nervous, to say the least.

So How Risky Is Bioalpha Holdings Berhad?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Bioalpha Holdings Berhad lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through RM10.0m of cash and made a loss of RM47m. Given it only has net cash of RM40.7m, 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. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Bioalpha Holdings Berhad (1 is potentially serious!) that you should be aware of before investing here.

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.