Does Box-Pak (Malaysia) Bhd (KLSE:BOXPAK) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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 note that Box-Pak (Malaysia) Bhd. (KLSE:BOXPAK) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Box-Pak (Malaysia) Bhd

What Is Box-Pak (Malaysia) Bhd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Box-Pak (Malaysia) Bhd had RM243.4m of debt, an increase on RM197.2m, over one year. On the flip side, it has RM33.7m in cash leading to net debt of about RM209.7m.

A Look At Box-Pak (Malaysia) Bhd's Liabilities

According to the last reported balance sheet, Box-Pak (Malaysia) Bhd had liabilities of RM357.7m due within 12 months, and liabilities of RM41.2m due beyond 12 months. On the other hand, it had cash of RM33.7m and RM151.7m worth of receivables due within a year. So it has liabilities totalling RM213.5m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the RM67.8m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Box-Pak (Malaysia) Bhd would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Box-Pak (Malaysia) Bhd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Box-Pak (Malaysia) Bhd made a loss at the EBIT level, and saw its revenue drop to RM654m, which is a fall of 2.1%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Box-Pak (Malaysia) Bhd produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at RM3.0m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely, given it is low on liquid assets, and burned through RM24m in the last year. So we think this stock is risky, like walking through a dirty dog park with a mask on. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 4 warning signs we've spotted with Box-Pak (Malaysia) Bhd (including 3 which shouldn't be ignored) .

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.

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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.