Econpile Holdings Berhad (KLSE:ECONBHD) Is Carrying A Fair Bit Of 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Econpile Holdings Berhad (KLSE:ECONBHD) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Econpile Holdings Berhad Carry?

As you can see below, Econpile Holdings Berhad had RM119.6m of debt at December 2024, down from RM131.5m a year prior. However, because it has a cash reserve of RM64.6m, its net debt is less, at about RM55.0m.

How Strong Is Econpile Holdings Berhad's Balance Sheet?

The latest balance sheet data shows that Econpile Holdings Berhad had liabilities of RM249.0m due within a year, and liabilities of RM20.1m falling due after that. Offsetting this, it had RM64.6m in cash and RM515.0m in receivables that were due within 12 months. So it can boast RM310.5m more liquid assets than total liabilities.

This luscious liquidity implies that Econpile Holdings Berhad's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Econpile Holdings Berhad can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts .

See our latest analysis for Econpile Holdings Berhad

Over 12 months, Econpile Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM336m, which is a fall of 22%. To be frank that doesn't bode well.

Caveat Emptor

While Econpile Holdings 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 RM870k at the EBIT level. That said, we're impressed with the strong balance sheet liquidity. That should give the business time to grow its cashflow. The company is risky because it will grow into the future to get to profitability and free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Econpile Holdings Berhad (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.