Does Atlan Holdings Bhd (KLSE:ATLAN) 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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Atlan Holdings Bhd (KLSE:ATLAN) 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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Atlan Holdings Bhd

How Much Debt Does Atlan Holdings Bhd Carry?

The image below, which you can click on for greater detail, shows that Atlan Holdings Bhd had debt of RM44.2m at the end of February 2021, a reduction from RM87.1m over a year. However, its balance sheet shows it holds RM273.9m in cash, so it actually has RM229.7m net cash.

How Strong Is Atlan Holdings Bhd's Balance Sheet?

We can see from the most recent balance sheet that Atlan Holdings Bhd had liabilities of RM132.7m falling due within a year, and liabilities of RM112.9m due beyond that. On the other hand, it had cash of RM273.9m and RM90.6m worth of receivables due within a year. So it actually has RM118.9m more liquid assets than total liabilities.

This excess liquidity suggests that Atlan Holdings Bhd is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Atlan Holdings Bhd boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Atlan Holdings Bhd'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.

Over 12 months, Atlan Holdings Bhd made a loss at the EBIT level, and saw its revenue drop to RM388m, which is a fall of 54%. To be frank that doesn't bode well.

So How Risky Is Atlan Holdings Bhd?

While Atlan Holdings Bhd lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM12m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with Atlan Holdings Bhd (including 1 which is a bit unpleasant) .

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.

When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.