ENRA Group Berhad (KLSE:ENRA) Has Debt But No Earnings; Should You Worry?

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.' 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 note that ENRA Group Berhad (KLSE:ENRA) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for ENRA Group Berhad

How Much Debt Does ENRA Group Berhad Carry?

As you can see below, at the end of December 2024, ENRA Group Berhad had RM55.7m of debt, up from RM44.5m a year ago. Click the image for more detail. However, it does have RM1.93m in cash offsetting this, leading to net debt of about RM53.7m.

How Healthy Is ENRA Group Berhad's Balance Sheet?

The latest balance sheet data shows that ENRA Group Berhad had liabilities of RM83.0m due within a year, and liabilities of RM30.4m falling due after that. Offsetting this, it had RM1.93m in cash and RM13.6m in receivables that were due within 12 months. So it has liabilities totalling RM97.8m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's RM89.0m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since ENRA Group 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.

Over 12 months, ENRA Group Berhad made a loss at the EBIT level, and saw its revenue drop to RM23m, which is a fall of 41%. That makes us nervous, to say the least.

Caveat Emptor

While ENRA Group Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping RM33m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through RM36m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for ENRA Group Berhad (3 are a bit concerning) 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.