Does ATA IMS Berhad (KLSE:ATAIMS) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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 ATA IMS Berhad (KLSE:ATAIMS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for ATA IMS Berhad

What Is ATA IMS Berhad's Debt?

As you can see below, ATA IMS Berhad had RM56.3m of debt at June 2024, down from RM62.9m a year prior. But it also has RM248.9m in cash to offset that, meaning it has RM192.6m net cash.

How Healthy Is ATA IMS Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ATA IMS Berhad had liabilities of RM135.9m due within 12 months and liabilities of RM59.0m due beyond that. On the other hand, it had cash of RM248.9m and RM114.5m worth of receivables due within a year. So it actually has RM168.4m more liquid assets than total liabilities.

This luscious liquidity implies that ATA IMS Berhad's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that ATA IMS Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is ATA IMS 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, ATA IMS Berhad made a loss at the EBIT level, and saw its revenue drop to RM375m, which is a fall of 39%. That makes us nervous, to say the least.

So How Risky Is ATA IMS Berhad?

While ATA IMS Berhad lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM6.2m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with ATA IMS Berhad (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.