Health Check: How Prudently Does BSL Corporation Berhad (KLSE:BSLCORP) Use Debt?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies BSL Corporation Berhad (KLSE:BSLCORP) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for BSL Corporation Berhad

What Is BSL Corporation Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2024 BSL Corporation Berhad had debt of RM23.7m, up from RM14.7m in one year. However, its balance sheet shows it holds RM128.8m in cash, so it actually has RM105.1m net cash.

A Look At BSL Corporation Berhad's Liabilities

We can see from the most recent balance sheet that BSL Corporation Berhad had liabilities of RM55.9m falling due within a year, and liabilities of RM7.00m due beyond that. Offsetting these obligations, it had cash of RM128.8m as well as receivables valued at RM25.9m due within 12 months. So it can boast RM91.8m more liquid assets than total liabilities.

This surplus liquidity suggests that BSL Corporation Berhad's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, BSL Corporation 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 BSL Corporation 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 BSL Corporation Berhad had a loss before interest and tax, and actually shrunk its revenue by 27%, to RM108m. That makes us nervous, to say the least.

So How Risky Is BSL Corporation Berhad?

Although BSL Corporation Berhad had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of RM2.0m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The next few years will be important as the business matures. 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. To that end, you should learn about the 3 warning signs we've spotted with BSL Corporation Berhad (including 2 which are significant) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

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