Is Rimbunan Sawit Berhad (KLSE:RSAWIT) Weighed On By Its Debt Load?

Simply Wall St · 5d ago

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Rimbunan Sawit Berhad (KLSE:RSAWIT) does carry debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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, 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 think about a company's use of debt, we first look at cash and debt together.

What Is Rimbunan Sawit Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that Rimbunan Sawit Berhad had debt of RM210.8m at the end of December 2024, a reduction from RM331.1m over a year. However, because it has a cash reserve of RM29.4m, its net debt is less, at about RM181.4m.

debt-equity-history-analysis
KLSE:RSAWIT Debt to Equity History May 8th 2025

How Healthy Is Rimbunan Sawit Berhad's Balance Sheet?

The latest balance sheet data shows that Rimbunan Sawit Berhad had liabilities of RM223.4m due within a year, and liabilities of RM149.3m falling due after that. Offsetting these obligations, it had cash of RM29.4m as well as receivables valued at RM25.1m due within 12 months. So it has liabilities totalling RM318.1m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of RM377.7m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But it is Rimbunan Sawit 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.

View our latest analysis for Rimbunan Sawit Berhad

In the last year Rimbunan Sawit Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 7.2%, to RM544m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Rimbunan Sawit Berhad had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost RM6.9m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled RM8.5m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Rimbunan Sawit Berhad (1 is a bit concerning) 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.