Does George Kent (Malaysia) Berhad (KLSE:GKENT) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that George Kent (Malaysia) Berhad (KLSE:GKENT) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

We've discovered 3 warning signs about George Kent (Malaysia) Berhad. View them for free.

Why Does Debt Bring Risk?

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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is George Kent (Malaysia) Berhad's Debt?

The chart below, which you can click on for greater detail, shows that George Kent (Malaysia) Berhad had RM199.1m in debt in December 2024; about the same as the year before. However, its balance sheet shows it holds RM279.3m in cash, so it actually has RM80.2m net cash.

How Strong Is George Kent (Malaysia) Berhad's Balance Sheet?

The latest balance sheet data shows that George Kent (Malaysia) Berhad had liabilities of RM123.8m due within a year, and liabilities of RM141.0m falling due after that. Offsetting this, it had RM279.3m in cash and RM201.6m in receivables that were due within 12 months. So it can boast RM216.0m more liquid assets than total liabilities.

This excess liquidity is a great indication that George Kent (Malaysia) Berhad's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, George Kent (Malaysia) Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is George Kent (Malaysia) 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.

Check out our latest analysis for George Kent (Malaysia) Berhad

Over 12 months, George Kent (Malaysia) Berhad made a loss at the EBIT level, and saw its revenue drop to RM130m, which is a fall of 11%. We would much prefer see growth.

So How Risky Is George Kent (Malaysia) Berhad?

While George Kent (Malaysia) Berhad lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM3.7m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. There's no doubt the next few years will be crucial to how the business matures. 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. To that end, you should learn about the 3 warning signs we've spotted with George Kent (Malaysia) Berhad (including 2 which are significant) .

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.