Kim Hin Industry Berhad (KLSE:KIMHIN) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Kim Hin Industry Berhad (KLSE:KIMHIN) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Kim Hin Industry Berhad

How Much Debt Does Kim Hin Industry Berhad Carry?

The image below, which you can click on for greater detail, shows that Kim Hin Industry Berhad had debt of RM11.0m at the end of December 2024, a reduction from RM17.8m over a year. But it also has RM43.5m in cash to offset that, meaning it has RM32.4m net cash.

How Strong Is Kim Hin Industry Berhad's Balance Sheet?

According to the last reported balance sheet, Kim Hin Industry Berhad had liabilities of RM83.1m due within 12 months, and liabilities of RM16.1m due beyond 12 months. Offsetting this, it had RM43.5m in cash and RM48.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM7.40m.

Given Kim Hin Industry Berhad has a market capitalization of RM61.7m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Kim Hin Industry Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Kim Hin Industry 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, Kim Hin Industry Berhad made a loss at the EBIT level, and saw its revenue drop to RM303m, which is a fall of 2.2%. We would much prefer see growth.

So How Risky Is Kim Hin Industry Berhad?

Although Kim Hin Industry Berhad had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of RM7.3m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. Case in point: We've spotted 3 warning signs for Kim Hin Industry Berhad you should be aware of, and 2 of them are concerning.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.