Is Key Alliance Group Berhad (KLSE:KGROUP) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Key Alliance Group Berhad (KLSE:KGROUP) 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 Key Alliance Group Berhad

What Is Key Alliance Group Berhad's Debt?

As you can see below, Key Alliance Group Berhad had RM11.1m of debt at December 2020, down from RM11.7m a year prior. But on the other hand it also has RM53.0m in cash, leading to a RM41.9m net cash position.

How Strong Is Key Alliance Group Berhad's Balance Sheet?

The latest balance sheet data shows that Key Alliance Group Berhad had liabilities of RM64.7m due within a year, and liabilities of RM13.2m falling due after that. On the other hand, it had cash of RM53.0m and RM58.2m worth of receivables due within a year. So it can boast RM33.4m more liquid assets than total liabilities.

This luscious liquidity implies that Key Alliance Group Berhad's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Key Alliance Group Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Key Alliance 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.

In the last year Key Alliance Group Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 26%, to RM50m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Key Alliance Group Berhad?

Although Key Alliance Group Berhad had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of RM22m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We think its revenue growth of 26% is a good sign. We'd see further strong growth as an optimistic indication. 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. For example Key Alliance Group Berhad has 4 warning signs (and 2 which are potentially serious) we think you should know about.

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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