Is PETRONAS Gas Berhad (KLSE:PETGAS) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that PETRONAS Gas Berhad (KLSE:PETGAS) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

How Much Debt Does PETRONAS Gas Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that PETRONAS Gas Berhad had RM1.29b of debt in September 2025, down from RM1.40b, one year before. But on the other hand it also has RM2.40b in cash, leading to a RM1.12b net cash position.

How Strong Is PETRONAS Gas Berhad's Balance Sheet?

We can see from the most recent balance sheet that PETRONAS Gas Berhad had liabilities of RM1.70b falling due within a year, and liabilities of RM3.34b due beyond that. On the other hand, it had cash of RM2.40b and RM953.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM1.69b.

Since publicly traded PETRONAS Gas Berhad shares are worth a total of RM36.4b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, PETRONAS Gas Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for PETRONAS Gas Berhad

But the other side of the story is that PETRONAS Gas Berhad saw its EBIT decline by 5.6% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine PETRONAS Gas 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. PETRONAS Gas Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, PETRONAS Gas Berhad recorded free cash flow worth 72% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that PETRONAS Gas Berhad has RM1.12b in net cash. The cherry on top was that in converted 72% of that EBIT to free cash flow, bringing in RM1.4b. So we don't think PETRONAS Gas Berhad's use of debt is 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. Be aware that PETRONAS Gas Berhad is showing 1 warning sign in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.