Does Hextar Technologies Solutions Berhad (KLSE:HEXTECH) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Hextar Technologies Solutions Berhad (KLSE:HEXTECH) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Hextar Technologies Solutions Berhad

What Is Hextar Technologies Solutions Berhad's Net Debt?

As you can see below, at the end of September 2024, Hextar Technologies Solutions Berhad had RM16.0m of debt, up from RM6.02m a year ago. Click the image for more detail. However, it does have RM8.12m in cash offsetting this, leading to net debt of about RM7.89m.

A Look At Hextar Technologies Solutions Berhad's Liabilities

We can see from the most recent balance sheet that Hextar Technologies Solutions Berhad had liabilities of RM35.4m falling due within a year, and liabilities of RM16.8m due beyond that. Offsetting this, it had RM8.12m in cash and RM79.1m in receivables that were due within 12 months. So it can boast RM34.9m more liquid assets than total liabilities.

Having regard to Hextar Technologies Solutions Berhad's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the RM2.53b company is struggling for cash, we still think it's worth monitoring its balance sheet. Carrying virtually no net debt, Hextar Technologies Solutions Berhad has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Hextar Technologies Solutions Berhad will need earnings to service that debt. 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.

Over 12 months, Hextar Technologies Solutions Berhad made a loss at the EBIT level, and saw its revenue drop to RM182m, which is a fall of 9.5%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Hextar Technologies Solutions Berhad produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at RM16m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Hextar Technologies Solutions Berhad you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.