Asia Poly Holdings Berhad (KLSE:ASIAPLY) Has Debt But No Earnings; Should You Worry?

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. Importantly, Asia Poly Holdings Berhad (KLSE:ASIAPLY) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Asia Poly Holdings Berhad

What Is Asia Poly Holdings Berhad's Debt?

The image below, which you can click on for greater detail, shows that at December 2021 Asia Poly Holdings Berhad had debt of RM33.8m, up from RM29.7m in one year. But on the other hand it also has RM49.6m in cash, leading to a RM15.8m net cash position.

A Look At Asia Poly Holdings Berhad's Liabilities

According to the last reported balance sheet, Asia Poly Holdings Berhad had liabilities of RM45.2m due within 12 months, and liabilities of RM21.6m due beyond 12 months. On the other hand, it had cash of RM49.6m and RM21.8m worth of receivables due within a year. So it actually has RM4.63m more liquid assets than total liabilities.

This short term liquidity is a sign that Asia Poly Holdings Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Asia Poly 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 Asia Poly 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.

In the last year Asia Poly Holdings Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 4.6%, to RM84m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Asia Poly Holdings Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Asia Poly Holdings Berhad had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through RM18m of cash and made a loss of RM8.0m. Given it only has net cash of RM15.8m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Case in point: We've spotted 3 warning signs for Asia Poly Holdings Berhad you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.