Is Bioalpha Holdings Berhad (KLSE:BIOHLDG) Using Debt Sensibly?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Bioalpha Holdings Berhad (KLSE:BIOHLDG) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Bioalpha Holdings Berhad

What Is Bioalpha Holdings Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Bioalpha Holdings Berhad had RM8.88m of debt, an increase on RM6.10m, over one year. However, it does have RM36.7m in cash offsetting this, leading to net cash of RM27.8m.

How Healthy Is Bioalpha Holdings Berhad's Balance Sheet?

According to the last reported balance sheet, Bioalpha Holdings Berhad had liabilities of RM13.1m due within 12 months, and liabilities of RM15.4m due beyond 12 months. Offsetting these obligations, it had cash of RM36.7m as well as receivables valued at RM42.5m due within 12 months. So it actually has RM50.6m more liquid assets than total liabilities.

It's good to see that Bioalpha Holdings Berhad has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Bioalpha Holdings Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. 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 if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Bioalpha Holdings Berhad reported revenue of RM82m, which is a gain of 49%, 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.

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. And over the same period it saw negative free cash outflow of RM16m and booked a RM6.8m accounting loss. Given it only has net cash of RM27.8m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Bioalpha Holdings Berhad may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. For example Bioalpha Holdings Berhad has 3 warning signs (and 1 which shouldn't be ignored) we think 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.