We Think PETRONAS Gas Berhad (KLSE:PETGAS) Can Manage Its Debt With Ease

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 PETRONAS Gas Berhad (KLSE:PETGAS) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is PETRONAS Gas Berhad's Debt?

As you can see below, PETRONAS Gas Berhad had RM1.29b of debt at June 2025, down from RM1.40b a year prior. However, it does have RM2.53b in cash offsetting this, leading to net cash of RM1.24b.

A Look At PETRONAS Gas Berhad's Liabilities

The latest balance sheet data shows that PETRONAS Gas Berhad had liabilities of RM1.42b due within a year, and liabilities of RM2.96b falling due after that. Offsetting these obligations, it had cash of RM2.53b as well as receivables valued at RM947.6m due within 12 months. So it has liabilities totalling RM904.8m more than its cash and near-term receivables, combined.

Given PETRONAS Gas Berhad has a market capitalization of RM36.8b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, PETRONAS Gas Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for PETRONAS Gas Berhad

PETRONAS Gas Berhad's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine PETRONAS Gas Berhad's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While PETRONAS Gas Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, PETRONAS Gas Berhad produced sturdy free cash flow equating to 74% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

We could understand if investors are concerned about PETRONAS Gas Berhad's liabilities, but we can be reassured by the fact it has has net cash of RM1.24b. And it impressed us with free cash flow of RM1.6b, being 74% of its EBIT. So we don't think PETRONAS Gas Berhad's use of debt is risky. 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. Be aware that PETRONAS Gas Berhad is showing 1 warning sign in our investment analysis , you should know about...

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.