Is BSL Corporation Berhad (KLSE:BSLCORP) 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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, BSL Corporation Berhad (KLSE:BSLCORP) does carry debt. But the real question is whether this debt is making the company risky.

We've discovered 3 warning signs about BSL Corporation Berhad. View them for free.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

What Is BSL Corporation Berhad's Net Debt?

As you can see below, BSL Corporation Berhad had RM14.4m of debt at December 2024, down from RM17.5m a year prior. However, its balance sheet shows it holds RM116.8m in cash, so it actually has RM102.4m 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 RM47.1m falling due within a year, and liabilities of RM5.10m due beyond that. Offsetting these obligations, it had cash of RM116.8m as well as receivables valued at RM29.0m due within 12 months. So it actually has RM93.6m more liquid assets than total liabilities.

This surplus strongly suggests that BSL Corporation Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for BSL Corporation Berhad

Over 12 months, BSL Corporation Berhad made a loss at the EBIT level, and saw its revenue drop to RM73m, which is a fall of 34%. To be frank that doesn't bode well.

So How Risky Is BSL Corporation Berhad?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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 RM13m and booked a RM5.7m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of RM102.4m. 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. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for BSL Corporation Berhad (of which 2 are a bit unpleasant!) 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.