Does Puncak Niaga Holdings Berhad (KLSE:PUNCAK) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Puncak Niaga Holdings Berhad (KLSE:PUNCAK) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Puncak Niaga Holdings Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Puncak Niaga Holdings Berhad had RM1.06b of debt in December 2024, down from RM1.15b, one year before. However, it does have RM262.4m in cash offsetting this, leading to net debt of about RM800.3m.

How Strong Is Puncak Niaga Holdings Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Puncak Niaga Holdings Berhad had liabilities of RM489.7m due within 12 months and liabilities of RM1.06b due beyond that. Offsetting this, it had RM262.4m in cash and RM214.6m in receivables that were due within 12 months. So it has liabilities totalling RM1.07b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the RM78.3m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Puncak Niaga Holdings Berhad would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Puncak Niaga Holdings 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.

See our latest analysis for Puncak Niaga Holdings Berhad

Over 12 months, Puncak Niaga Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM223m, which is a fall of 34%. That makes us nervous, to say the least.

Caveat Emptor

While Puncak Niaga Holdings Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping RM62m. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost RM132m in the last year. So we think buying this stock 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 Puncak Niaga Holdings Berhad is showing 3 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.