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

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 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 KSL Holdings Berhad (KLSE:KSL) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 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. 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.

View our latest analysis for KSL Holdings Berhad

What Is KSL Holdings Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 KSL Holdings Berhad had RM137.9m of debt, an increase on RM58.2m, over one year. However, its balance sheet shows it holds RM440.0m in cash, so it actually has RM302.2m net cash.

How Strong Is KSL Holdings Berhad's Balance Sheet?

We can see from the most recent balance sheet that KSL Holdings Berhad had liabilities of RM267.4m falling due within a year, and liabilities of RM212.2m due beyond that. Offsetting this, it had RM440.0m in cash and RM535.6m in receivables that were due within 12 months. So it actually has RM496.1m more liquid assets than total liabilities.

This surplus suggests that KSL Holdings Berhad is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, KSL Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, KSL Holdings Berhad grew its EBIT by 44% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since KSL 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While KSL Holdings Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, KSL Holdings Berhad's free cash flow amounted to 38% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that KSL Holdings Berhad has net cash of RM302.2m, as well as more liquid assets than liabilities. And we liked the look of last year's 44% year-on-year EBIT growth. So we don't think KSL Holdings Berhad's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in KSL Holdings Berhad, you may well want to click here to check an interactive graph of its earnings per share history.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.