Is LYC Healthcare Berhad (KLSE:LYC) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that LYC Healthcare Berhad (KLSE:LYC) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for LYC Healthcare Berhad

How Much Debt Does LYC Healthcare Berhad Carry?

The image below, which you can click on for greater detail, shows that at June 2024 LYC Healthcare Berhad had debt of RM79.9m, up from RM70.0m in one year. However, it does have RM20.7m in cash offsetting this, leading to net debt of about RM59.2m.

How Strong Is LYC Healthcare Berhad's Balance Sheet?

According to the last reported balance sheet, LYC Healthcare Berhad had liabilities of RM61.8m due within 12 months, and liabilities of RM131.0m due beyond 12 months. Offsetting this, it had RM20.7m in cash and RM27.2m in receivables that were due within 12 months. So its liabilities total RM145.0m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the RM60.8m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, LYC Healthcare Berhad would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is LYC Healthcare 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.

In the last year LYC Healthcare Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 46%, to RM143m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, LYC Healthcare Berhad still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost RM1.3m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of RM20m. And until that time we think this is a risky stock. 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. Case in point: We've spotted 4 warning signs for LYC Healthcare Berhad you should be aware of, and 1 of them can't be ignored.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.