Despite Lacking Profits Vinvest Capital Holdings Berhad (KLSE:VINVEST) Seems To Be On Top Of Its Debt

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Vinvest Capital Holdings Berhad (KLSE:VINVEST) makes use of debt. But is this debt a concern to shareholders?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Vinvest Capital Holdings Berhad

How Much Debt Does Vinvest Capital Holdings Berhad Carry?

As you can see below, Vinvest Capital Holdings Berhad had RM37.2m of debt at December 2022, down from RM74.2m a year prior. But on the other hand it also has RM55.3m in cash, leading to a RM18.1m net cash position.

How Strong Is Vinvest Capital Holdings Berhad's Balance Sheet?

The latest balance sheet data shows that Vinvest Capital Holdings Berhad had liabilities of RM103.7m due within a year, and liabilities of RM20.9m falling due after that. On the other hand, it had cash of RM55.3m and RM235.8m worth of receivables due within a year. So it actually has RM166.4m more liquid assets than total liabilities.

This surplus strongly suggests that Vinvest Capital Holdings Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Vinvest Capital Holdings Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Vinvest Capital 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.

Over 12 months, Vinvest Capital Holdings Berhad reported revenue of RM99m, which is a gain of 54%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Vinvest Capital Holdings Berhad?

Although Vinvest Capital Holdings Berhad had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of RM22m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Given it also grew revenue by 54% over the last year, we think there's a good chance the company is on track. That growth could mean this is one stock well worth watching. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Vinvest Capital Holdings Berhad is showing 2 warning signs in our investment analysis , you should know about...

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.