We Think Dufu Technology Berhad (KLSE:DUFU) Can Stay On Top Of Its Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Dufu Technology Corp. Berhad (KLSE:DUFU) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Dufu Technology Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that Dufu Technology Berhad had debt of RM58.5m at the end of June 2025, a reduction from RM64.3m over a year. However, it does have RM101.7m in cash offsetting this, leading to net cash of RM43.2m.

A Look At Dufu Technology Berhad's Liabilities

We can see from the most recent balance sheet that Dufu Technology Berhad had liabilities of RM50.0m falling due within a year, and liabilities of RM46.6m due beyond that. On the other hand, it had cash of RM101.7m and RM93.5m worth of receivables due within a year. So it actually has RM98.6m more liquid assets than total liabilities.

This short term liquidity is a sign that Dufu Technology Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Dufu Technology Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Dufu Technology Berhad

And we also note warmly that Dufu Technology Berhad grew its EBIT by 14% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But it is Dufu Technology Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Dufu Technology 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. In the last three years, Dufu Technology Berhad's free cash flow amounted to 24% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Dufu Technology Berhad has net cash of RM43.2m, as well as more liquid assets than liabilities. And it also grew its EBIT by 14% over the last year. So we don't think Dufu Technology Berhad's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Dufu Technology Berhad has 2 warning signs we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.