Kelington Group Berhad (KLSE:KGB) Could Easily Take On More Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Kelington Group Berhad (KLSE:KGB) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Kelington Group Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Kelington Group Berhad had RM171.1m of debt in June 2025, down from RM185.4m, one year before. But on the other hand it also has RM503.6m in cash, leading to a RM332.6m net cash position.

How Healthy Is Kelington Group Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Kelington Group Berhad had liabilities of RM590.3m due within 12 months and liabilities of RM94.5m due beyond that. Offsetting this, it had RM503.6m in cash and RM464.0m in receivables that were due within 12 months. So it can boast RM282.9m more liquid assets than total liabilities.

This surplus suggests that Kelington Group Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Kelington Group Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Kelington Group Berhad

Fortunately, Kelington Group Berhad grew its EBIT by 6.5% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Kelington Group Berhad's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Kelington Group 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 three years, Kelington Group Berhad generated free cash flow amounting to a very robust 93% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Kelington Group Berhad has RM332.6m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 93% of that EBIT to free cash flow, bringing in RM170m. So we don't think Kelington Group Berhad's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Kelington Group Berhad, you may well want to click here to check an interactive graph of its earnings per share history.

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.

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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.