Is Country Heights Holdings Berhad (KLSE:CHHB) Weighed On By Its Debt Load?

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 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 can see that Country Heights Holdings Berhad (KLSE:CHHB) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Country Heights Holdings Berhad

How Much Debt Does Country Heights Holdings Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that Country Heights Holdings Berhad had RM189.6m of debt in December 2022, down from RM205.5m, one year before. On the flip side, it has RM9.46m in cash leading to net debt of about RM180.1m.

How Strong Is Country Heights Holdings Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Country Heights Holdings Berhad had liabilities of RM202.5m due within 12 months and liabilities of RM300.7m due beyond that. Offsetting these obligations, it had cash of RM9.46m as well as receivables valued at RM52.3m due within 12 months. So it has liabilities totalling RM441.5m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the RM105.3m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Country Heights Holdings Berhad would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Country Heights Holdings 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.

In the last year Country Heights Holdings Berhad had a loss before interest and tax, and actually shrunk its revenue by 56%, to RM46m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Country Heights Holdings Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable RM90m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized RM21m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. 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. For instance, we've identified 3 warning signs for Country Heights Holdings Berhad (2 are a bit unpleasant) you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.