Does Kamdar Group (M) Berhad (KLSE:KAMDAR) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Kamdar Group (M) Berhad (KLSE:KAMDAR) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Kamdar Group (M) Berhad

How Much Debt Does Kamdar Group (M) Berhad Carry?

As you can see below, Kamdar Group (M) Berhad had RM81.6m of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. However, it also had RM5.84m in cash, and so its net debt is RM75.8m.

A Look At Kamdar Group (M) Berhad's Liabilities

According to the last reported balance sheet, Kamdar Group (M) Berhad had liabilities of RM52.2m due within 12 months, and liabilities of RM53.0m due beyond 12 months. Offsetting this, it had RM5.84m in cash and RM7.44m in receivables that were due within 12 months. So it has liabilities totalling RM92.0m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the RM51.5m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Kamdar Group (M) 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 Kamdar Group (M) 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.

Over 12 months, Kamdar Group (M) Berhad made a loss at the EBIT level, and saw its revenue drop to RM87m, which is a fall of 24%. To be frank that doesn't bode well.

Caveat Emptor

While Kamdar Group (M) 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. Indeed, it lost RM2.1m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of RM5.2m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Kamdar Group (M) Berhad you should be aware of, and 1 of them is a bit unpleasant.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.
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