We Think L&P Global Berhad (KLSE:L&PBHD) Can Manage Its Debt With Ease

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.' 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 L&P Global Berhad (KLSE:L&PBHD) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is L&P Global Berhad's Debt?

As you can see below, L&P Global Berhad had RM26.6m of debt at March 2025, down from RM28.6m a year prior. However, it does have RM53.6m in cash offsetting this, leading to net cash of RM27.0m.

How Healthy Is L&P Global Berhad's Balance Sheet?

According to the last reported balance sheet, L&P Global Berhad had liabilities of RM9.20m due within 12 months, and liabilities of RM27.6m due beyond 12 months. Offsetting this, it had RM53.6m in cash and RM25.9m in receivables that were due within 12 months. So it can boast RM42.7m more liquid assets than total liabilities.

This luscious liquidity implies that L&P Global Berhad's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, L&P Global Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for L&P Global Berhad

It is just as well that L&P Global Berhad's load is not too heavy, because its EBIT was down 57% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. When analysing debt levels, the balance sheet is the obvious place to start. But it is L&P Global 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. L&P Global Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, L&P Global Berhad recorded free cash flow worth a fulsome 99% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that L&P Global Berhad has net cash of RM27.0m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of RM17m, being 99% of its EBIT. So is L&P Global Berhad's debt a risk? It doesn't seem so to us. 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 L&P Global Berhad is showing 3 warning signs in our investment analysis , you should know about...

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.