Is UEM Edgenta Berhad (KLSE:EDGENTA) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 UEM Edgenta Berhad (KLSE:EDGENTA) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is UEM Edgenta Berhad's Net Debt?

As you can see below, UEM Edgenta Berhad had RM397.9m of debt at September 2025, down from RM475.0m a year prior. But on the other hand it also has RM563.2m in cash, leading to a RM165.4m net cash position.

How Strong Is UEM Edgenta Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that UEM Edgenta Berhad had liabilities of RM1.23b due within 12 months and liabilities of RM114.3m due beyond that. Offsetting this, it had RM563.2m in cash and RM1.15b in receivables that were due within 12 months. So it can boast RM374.7m more liquid assets than total liabilities.

This excess liquidity is a great indication that UEM Edgenta Berhad's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that UEM Edgenta Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for UEM Edgenta Berhad

The modesty of its debt load may become crucial for UEM Edgenta Berhad if management cannot prevent a repeat of the 97% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But it is UEM Edgenta Berhad's earnings that will influence how the balance sheet holds up in the future. 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. UEM Edgenta 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 last three years, UEM Edgenta Berhad recorded free cash flow worth a fulsome 89% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that UEM Edgenta Berhad has net cash of RM165.4m, as well as more liquid assets than liabilities. The cherry on top was that in converted 89% of that EBIT to free cash flow, bringing in RM210m. So we don't think UEM Edgenta Berhad's use of debt is risky. 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. Be aware that UEM Edgenta Berhad is showing 2 warning signs in our investment analysis , and 1 of those can't be ignored...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.