Does OCR Group Berhad (KLSE:OCR) 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.' 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. Importantly, OCR Group Berhad (KLSE:OCR) does carry debt. But should shareholders be worried about its use of debt?

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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 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is OCR Group Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 OCR Group Berhad had RM186.0m of debt, an increase on RM157.8m, over one year. On the flip side, it has RM11.7m in cash leading to net debt of about RM174.3m.

How Strong Is OCR Group Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that OCR Group Berhad had liabilities of RM224.3m due within 12 months and liabilities of RM156.5m due beyond that. Offsetting these obligations, it had cash of RM11.7m as well as receivables valued at RM161.0m due within 12 months. So it has liabilities totalling RM208.1m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the RM133.6m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, OCR Group Berhad would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is OCR Group Berhad's earnings that will influence how the balance sheet holds up in the future. 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.

Check out our latest analysis for OCR Group Berhad

In the last year OCR Group Berhad had a loss before interest and tax, and actually shrunk its revenue by 36%, to RM95m. To be frank that doesn't bode well.

Caveat Emptor

While OCR 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. To be specific the EBIT loss came in at RM137k. 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 had negative free cash flow of RM66m over the last twelve months. 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. Be aware that OCR Group Berhad is showing 5 warning signs in our investment analysis , and 2 of those don't sit too well with us...

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.