Hextar Industries Berhad (KLSE:HEXIND) Has A Pretty 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. As with many other companies Hextar Industries Berhad (KLSE:HEXIND) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

See our latest analysis for Hextar Industries Berhad

What Is Hextar Industries Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that Hextar Industries Berhad had RM24.5m of debt in May 2022, down from RM58.7m, one year before. But on the other hand it also has RM49.3m in cash, leading to a RM24.7m net cash position.

How Strong Is Hextar Industries Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hextar Industries Berhad had liabilities of RM39.6m due within 12 months and liabilities of RM21.6m due beyond that. Offsetting these obligations, it had cash of RM49.3m as well as receivables valued at RM85.6m due within 12 months. So it actually has RM73.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Hextar Industries Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Hextar Industries Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

We also note that Hextar Industries Berhad improved its EBIT from a last year's loss to a positive RM7.9m. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Hextar Industries 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Hextar Industries 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. During the last year, Hextar Industries Berhad burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Hextar Industries Berhad has RM24.7m in net cash and a decent-looking balance sheet. So we don't have any problem with Hextar Industries Berhad's use of debt. 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. To that end, you should learn about the 3 warning signs we've spotted with Hextar Industries Berhad (including 1 which doesn't sit too well with us) .

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.