Does ILB Group Berhad (KLSE:ILB) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 ILB Group Berhad (KLSE:ILB) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for ILB Group Berhad

What Is ILB Group Berhad's Net Debt?

As you can see below, ILB Group Berhad had RM50.6m of debt at March 2022, down from RM65.2m a year prior. But on the other hand it also has RM86.6m in cash, leading to a RM36.0m net cash position.

A Look At ILB Group Berhad's Liabilities

According to the last reported balance sheet, ILB Group Berhad had liabilities of RM27.9m due within 12 months, and liabilities of RM27.9m due beyond 12 months. On the other hand, it had cash of RM86.6m and RM20.7m worth of receivables due within a year. So it can boast RM51.4m more liquid assets than total liabilities.

This excess liquidity is a great indication that ILB Group Berhad's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that ILB Group 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 ILB Group 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, ILB Group Berhad reported revenue of RM21m, which is a gain of 158%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is ILB Group Berhad?

While ILB Group Berhad lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of RM7.4m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We also take heart from the solid 158% revenue growth in 12 months; undoubtedly a good sign. That growth could mean this is one stock well worth watching. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 4 warning signs we've spotted with ILB Group Berhad .

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.

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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.