Pantech Group Holdings Berhad (KLSE:PANTECH) Could Easily Take On More Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Pantech Group Holdings Berhad (KLSE:PANTECH) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Pantech Group Holdings Berhad

What Is Pantech Group Holdings Berhad's Debt?

As you can see below, Pantech Group Holdings Berhad had RM223.0m of debt, at November 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has RM289.4m in cash, leading to a RM66.4m net cash position.

How Strong Is Pantech Group Holdings Berhad's Balance Sheet?

The latest balance sheet data shows that Pantech Group Holdings Berhad had liabilities of RM253.0m due within a year, and liabilities of RM67.2m falling due after that. Offsetting these obligations, it had cash of RM289.4m as well as receivables valued at RM208.9m due within 12 months. So it can boast RM178.2m more liquid assets than total liabilities.

It's good to see that Pantech Group Holdings Berhad has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Pantech Group Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Pantech Group Holdings Berhad saw its EBIT drop by 2.9% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Pantech Group Holdings 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Pantech Group Holdings 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. During the last three years, Pantech Group Holdings Berhad produced sturdy free cash flow equating to 57% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Pantech Group Holdings Berhad has RM66.4m in net cash and a decent-looking balance sheet. So is Pantech Group Holdings Berhad's debt a risk? It doesn't seem so to us. 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 be aware of the 1 warning sign we've spotted with Pantech Group Holdings Berhad .

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.