Does the PPB Berhad Group (KLSE: PPB) have a healthy balance sheet?
Legendary fund manager Li Lu (whom Charlie Munger supported) once said, “The biggest risk in investing is not price volatility, but the possibility that you will suffer a permanent loss of capital.” When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. We note that PPB Berhad Group (KLSE: PPB) has debt on its balance sheet. But does this debt worry shareholders?
When is debt dangerous?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. When we look at debt levels, we first consider both liquidity and debt levels.
Check out our latest review for PPB Group Berhad
What is the debt of PPB Group Berhad?
As you can see below, at the end of June 2021 PPB Group Berhad had a debt of RM942.5 million, up from RM 530.8 million a year ago. Click on the image for more details. But on the other hand, he also has RM1.36 billion in cash, which leads to a net cash position of RM421.5 million.
How strong is PPB Group Berhad’s balance sheet?
Zooming in on the latest balance sheet data, we can see that PPB Group Berhad had a liability of RM 1.50 billion due within 12 months and a liability of RM 420.0 million due beyond. In return, he had RM 1.36 billion in cash and RM 1.20 billion in receivables due within 12 months. So, it can boast of having more than 639.5 million RM of liquid assets that total Liabilities.
This surplus suggests that PPB Group Berhad has a prudent balance sheet and could probably eliminate its debt without too much difficulty. In short, PPB Group Berhad has a net cash position, so it is fair to say that it does not have a heavy debt load! There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine PPB Group Berhad’s ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
In the past year, PPB Group Berhad’s turnover was rather stable and generated negative EBIT. Even though it’s not that bad, we would rather see some growth.
So how risky is the PPB Berhad Group?
Although PPB Group Berhad recorded a loss of profit before interest and taxes (EBIT) in the last twelve months, it achieved a statutory profit of RM 1.4 billion. So taking this at face value, and given the money, we don’t think it’s very risky in the short term. We will feel more comfortable with the stock once EBIT is positive, given the weak revenue growth. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist off the balance sheet. Concrete example: we have spotted 1 warning sign for PPB Group Berhad you must be aware.
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.