Would Axteria Group Berhad (KLSE:AXTERIA) Be Better Off With Less Debt?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Axteria Group Berhad (KLSE:AXTERIA) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. 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. 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.

Check out our latest analysis for Axteria Group Berhad

What Is Axteria Group Berhad's Net Debt?

As you can see below, at the end of March 2023, Axteria Group Berhad had RM21.3m of debt, up from RM13.6m a year ago. Click the image for more detail. However, it also had RM13.6m in cash, and so its net debt is RM7.63m.

How Strong Is Axteria Group Berhad's Balance Sheet?

According to the last reported balance sheet, Axteria Group Berhad had liabilities of RM20.0m due within 12 months, and liabilities of RM21.2m due beyond 12 months. Offsetting this, it had RM13.6m in cash and RM9.67m in receivables that were due within 12 months. So its liabilities total RM17.9m more than the combination of its cash and short-term receivables.

Since publicly traded Axteria Group Berhad shares are worth a total of RM132.6m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is Axteria Group 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.

Over 12 months, Axteria Group Berhad made a loss at the EBIT level, and saw its revenue drop to RM27m, which is a fall of 13%. That's not what we would hope to see.

Caveat Emptor

Not only did Axteria Group Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost RM8.4m at the EBIT level. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through RM27m of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 4 warning signs we've spotted with Axteria Group Berhad (including 2 which are concerning) .

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.