Here's Why Eversafe Rubber Berhad (KLSE:ESAFE) Can Afford Some 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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Eversafe Rubber Berhad (KLSE:ESAFE) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Eversafe Rubber Berhad Carry?

As you can see below, at the end of June 2025, Eversafe Rubber Berhad had RM50.9m of debt, up from RM35.2m a year ago. Click the image for more detail. On the flip side, it has RM20.9m in cash leading to net debt of about RM30.0m.

How Strong Is Eversafe Rubber Berhad's Balance Sheet?

According to the last reported balance sheet, Eversafe Rubber Berhad had liabilities of RM47.1m due within 12 months, and liabilities of RM20.7m due beyond 12 months. Offsetting this, it had RM20.9m in cash and RM36.5m in receivables that were due within 12 months. So it has liabilities totalling RM10.4m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Eversafe Rubber Berhad has a market capitalization of RM34.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Eversafe Rubber Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for Eversafe Rubber Berhad

In the last year Eversafe Rubber Berhad had a loss before interest and tax, and actually shrunk its revenue by 11%, to RM102m. That's not what we would hope to see.

Caveat Emptor

While Eversafe Rubber Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable RM6.9m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through RM7.9m of cash over the last year. So suffice it to say we consider the stock very 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 example, we've discovered 4 warning signs for Eversafe Rubber Berhad that you should be aware of before investing here.

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.