Does Mitrajaya Holdings Berhad (KLSE:MITRA) Have A Healthy Balance Sheet?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Mitrajaya Holdings Berhad (KLSE:MITRA) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Mitrajaya Holdings Berhad's Debt?

As you can see below, at the end of June 2025, Mitrajaya Holdings Berhad had RM56.6m of debt, up from RM45.4m a year ago. Click the image for more detail. However, because it has a cash reserve of RM15.5m, its net debt is less, at about RM41.0m.

How Strong Is Mitrajaya Holdings Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Mitrajaya Holdings Berhad had liabilities of RM289.6m due within 12 months and liabilities of RM4.03m due beyond that. Offsetting these obligations, it had cash of RM15.5m as well as receivables valued at RM311.2m due within 12 months. So it can boast RM33.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Mitrajaya Holdings Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched.

See our latest analysis for Mitrajaya Holdings Berhad

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Mitrajaya Holdings Berhad's net debt is only 0.52 times its EBITDA. And its EBIT covers its interest expense a whopping 97.8 times over. So we're pretty relaxed about its super-conservative use of debt. It was also good to see that despite losing money on the EBIT line last year, Mitrajaya Holdings Berhad turned things around in the last 12 months, delivering and EBIT of RM60m. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Mitrajaya Holdings 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. In the last year, Mitrajaya Holdings Berhad created free cash flow amounting to 19% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Our View

Mitrajaya Holdings Berhad's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. But, on a more sombre note, we are a little concerned by its conversion of EBIT to free cash flow. Looking at all the aforementioned factors together, it strikes us that Mitrajaya Holdings Berhad can handle its debt fairly comfortably. Of course, while this leverage can enhance returns on equity, it does bring more risk, so it's worth keeping an eye on this one. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Mitrajaya Holdings Berhad , and understanding them should be part of your investment process.

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.