Does Sasbadi Holdings Berhad (KLSE:SASBADI) Have A Healthy Balance Sheet?

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. Importantly, Sasbadi Holdings Berhad (KLSE:SASBADI) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Sasbadi Holdings Berhad

How Much Debt Does Sasbadi Holdings Berhad Carry?

As you can see below, Sasbadi Holdings Berhad had RM34.9m of debt at November 2020, down from RM40.8m a year prior. However, it also had RM7.48m in cash, and so its net debt is RM27.5m.

How Strong Is Sasbadi Holdings Berhad's Balance Sheet?

According to the last reported balance sheet, Sasbadi Holdings Berhad had liabilities of RM49.2m due within 12 months, and liabilities of RM17.3m due beyond 12 months. On the other hand, it had cash of RM7.48m and RM52.9m worth of receivables due within a year. So its liabilities total RM6.05m more than the combination of its cash and short-term receivables.

Since publicly traded Sasbadi Holdings Berhad shares are worth a total of RM58.7m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Sasbadi Holdings Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Sasbadi Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM50m, which is a fall of 42%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Sasbadi Holdings Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping RM11m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of RM13m. So in short it's a really risky stock. 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 2 warning signs for Sasbadi Holdings Berhad (of which 1 can't be ignored!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. 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.
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