Sunway Construction Group Berhad (KLSE:SUNCON) Seems To Use Debt Rather Sparingly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Sunway Construction Group Berhad (KLSE:SUNCON) makes use of debt. But should shareholders be worried about its use of debt?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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?

The image below, which you can click on for greater detail, shows that Sunway Construction Group Berhad had debt of RM686.5m at the end of March 2025, a reduction from RM957.6m over a year. But it also has RM1.52b in cash to offset that, meaning it has RM834.6m net cash.

A Look At Sunway Construction Group Berhad's Liabilities

According to the last reported balance sheet, Sunway Construction Group Berhad had liabilities of RM2.76b due within 12 months, and liabilities of RM64.2m due beyond 12 months. On the other hand, it had cash of RM1.52b and RM1.57b worth of receivables due within a year. So it actually has RM265.6m more liquid assets than total liabilities.

This short term liquidity is a sign that Sunway Construction Group Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Sunway Construction Group Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

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 35%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Sunway Construction Group Berhad can strengthen its balance sheet over time. 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. 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. Happily for any shareholders, Sunway Construction Group Berhad actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

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 RM834.6m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of RM1.3b, being 106% of its EBIT. So is Sunway Construction Group Berhad's debt a risk? It doesn't seem so to us. 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.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.