Is BSL Corporation Berhad (KLSE:BSLCORP) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that BSL Corporation Berhad (KLSE:BSLCORP) 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. If things get really bad, the lenders can take control of the business. 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, 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 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 June 2024 BSL Corporation Berhad had debt of RM19.8m, up from RM14.7m in one year. However, it does have RM128.1m in cash offsetting this, leading to net cash of RM108.2m.

How Healthy Is BSL Corporation Berhad's Balance Sheet?

We can see from the most recent balance sheet that BSL Corporation Berhad had liabilities of RM51.4m falling due within a year, and liabilities of RM6.45m due beyond that. Offsetting this, it had RM128.1m in cash and RM22.6m in receivables that were due within 12 months. So it can boast RM92.9m 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. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that BSL Corporation Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is BSL Corporation Berhad's earnings that will influence how the balance sheet holds up in the future. 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, BSL Corporation Berhad made a loss at the EBIT level, and saw its revenue drop to RM100m, which is a fall of 26%. That makes us nervous, to say the least.

So How Risky Is BSL Corporation Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that BSL Corporation Berhad had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of RM8.4m and booked a RM21m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of RM108.2m. That means it could keep spending at its current rate for more than two years. 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. 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. Be aware that BSL Corporation Berhad is showing 3 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

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.