Is AwanBiru Technology Berhad (KLSE:AWANTEC) using too much debt?
Warren Buffett said: “Volatility is far from synonymous with risk. So it may be obvious that you need to consider debt when thinking about the risk of a given stock, because too much debt can sink a business. Like many other companies AwanBiru Berhad Technology (KLSE:AWANTEC) uses debt. But the more important question is: what risk does this debt create?
Why is debt risky?
Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. If things go really bad, lenders can take over the business. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, many companies use debt to finance their growth, without any negative consequences. The first step when considering a company’s debt levels is to consider its cash and debt together.
See our latest analysis for AwanBiru Technology Berhad
What is AwanBiru Technology Berhad’s debt?
As you can see below, AwanBiru Technology Berhad had a debt of RM19.4 million in March 2022, compared to RM32.6 million the previous year. But he also has RM28.4m in cash to make up for that, meaning he has a net cash of RM9.01m.
How healthy is AwanBiru Technology Berhad’s balance sheet?
We can see from the most recent balance sheet that AwanBiru Technology Berhad had liabilities of RM220.5 million falling due within one year, and liabilities of RM32.4 million due beyond. In return, he had RM28.4 million in cash and RM371.3 million in debt due within 12 months. So he actually has RM146.7 million After liquid assets than total liabilities.
This excess liquidity suggests that AwanBiru Technology Berhad’s balance sheet could take a hit as well as Homer Simpson’s head can take a hit. With that in mind, one could argue that its track record means the company is capable of dealing with some adversity. Simply put, the fact that AwanBiru Technology Berhad has more cash than debt is arguably a good indication that it can safely manage its debt. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether AwanBiru Technology Berhad can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Over 12 months, AwanBiru Technology Berhad recorded a loss in EBIT and saw its revenue drop to RM81 million, a drop of 50%. It makes us nervous, to say the least.
So, how risky is AwanBiru technology?
While AwanBiru Technology Berhad lost money in earnings before interest and tax (EBIT), it actually recorded a paper profit of RM4.0 million. So if you consider it has net cash, plus statutory earnings, the stock probably isn’t as risky as it looks, at least in the short term. With lackluster revenue growth over the past year, we don’t find the investment opportunity particularly attractive. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Know that AwanBiru Technology Berhad shows 3 warning signs in our investment analysis you should know…
Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient 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 only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.