Does WA Kaolin (ASX:WAK) Have A Healthy Balance Sheet?

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. Importantly, WA Kaolin Limited (ASX:WAK) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is WA Kaolin's Debt?

The chart below, which you can click on for greater detail, shows that WA Kaolin had AU$25.7m in debt in June 2025; about the same as the year before. However, it does have AU$3.58m in cash offsetting this, leading to net debt of about AU$22.1m.

How Healthy Is WA Kaolin's Balance Sheet?

According to the last reported balance sheet, WA Kaolin had liabilities of AU$28.8m due within 12 months, and liabilities of AU$2.17m due beyond 12 months. Offsetting this, it had AU$3.58m in cash and AU$1.62m in receivables that were due within 12 months. So its liabilities total AU$25.8m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of AU$32.1m, so it does suggest shareholders should keep an eye on WA Kaolin's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since WA Kaolin will need earnings to service that debt. 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 WA Kaolin

In the last year WA Kaolin wasn't profitable at an EBIT level, but managed to grow its revenue by 123%, to AU$5.7m. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Despite the top line growth, WA Kaolin still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping AU$6.9m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled AU$6.8m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for WA Kaolin (of which 2 don't sit too well with us!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.