Here's Why YTL Corporation Berhad (KLSE:YTL) Is Weighed Down By Its Debt Load

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, YTL Corporation Berhad (KLSE:YTL) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, 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 YTL Corporation Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 YTL Corporation Berhad had RM52.1b of debt, an increase on RM46.6b, over one year. However, it also had RM19.6b in cash, and so its net debt is RM32.5b.

How Strong Is YTL Corporation Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that YTL Corporation Berhad had liabilities of RM17.4b due within 12 months and liabilities of RM53.9b due beyond that. Offsetting these obligations, it had cash of RM19.6b as well as receivables valued at RM7.58b due within 12 months. So its liabilities total RM44.1b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of RM30.5b, we think shareholders really should watch YTL Corporation Berhad's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution.

Check out our latest analysis for YTL Corporation Berhad

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

YTL Corporation Berhad's debt is 3.8 times its EBITDA, and its EBIT cover its interest expense 2.7 times over. This suggests that while the debt levels are significant, we'd stop short of calling them problematic. More concerning, YTL Corporation Berhad saw its EBIT drop by 9.8% in the last twelve months. If it keeps going like that paying off its debt will be like running on a treadmill -- a lot of effort for not much advancement. 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 YTL Corporation 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, a company can only pay off debt with cold hard cash, not accounting profits. So we always check how much of that EBIT is translated into free cash flow. In the last three years, YTL Corporation Berhad's free cash flow amounted to 26% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Our View

We'd go so far as to say YTL Corporation Berhad's level of total liabilities was disappointing. And furthermore, its net debt to EBITDA also fails to instill confidence. We should also note that Integrated Utilities industry companies like YTL Corporation Berhad commonly do use debt without problems. We're quite clear that we consider YTL Corporation Berhad to be really rather risky, as a result of its balance sheet health. So we're almost as wary of this stock as a hungry kitten is about falling into its owner's fish pond: once bitten, twice shy, as they say. 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. For instance, we've identified 1 warning sign for YTL Corporation Berhad that you should be aware of.

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.