Sunway Construction Group Berhad (KLSE:SUNCON) Could Easily Take On More Debt

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.' 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 Sunway Construction Group Berhad (KLSE:SUNCON) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Sunway Construction Group Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Sunway Construction Group Berhad had RM716.5m of debt in June 2025, down from RM949.2m, one year before. However, it does have RM1.96b in cash offsetting this, leading to net cash of RM1.24b.

A Look At Sunway Construction Group Berhad's Liabilities

According to the last reported balance sheet, Sunway Construction Group Berhad had liabilities of RM3.72b due within 12 months, and liabilities of RM64.9m due beyond 12 months. Offsetting these obligations, it had cash of RM1.96b as well as receivables valued at RM2.13b due within 12 months. So it can boast RM306.4m more liquid assets than total liabilities.

This surplus suggests that Sunway Construction Group Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Sunway Construction Group Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Sunway Construction Group Berhad

In addition to that, we're happy to report that Sunway Construction Group Berhad has boosted its EBIT by 58%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Sunway Construction Group Berhad's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Sunway Construction Group Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Sunway Construction Group Berhad actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Sunway Construction Group Berhad has net cash of RM1.24b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of RM1.6b, being 143% of its EBIT. So we don't think Sunway Construction Group Berhad's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Sunway Construction 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.