Is Vinvest Capital Holdings Berhad (KLSE:VINVEST) A Risky Investment?

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. Importantly, Vinvest Capital Holdings Berhad (KLSE:VINVEST) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Vinvest Capital Holdings Berhad

How Much Debt Does Vinvest Capital Holdings Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that Vinvest Capital Holdings Berhad had RM36.3m of debt in March 2024, down from RM89.9m, one year before. However, because it has a cash reserve of RM26.9m, its net debt is less, at about RM9.35m.

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

We can see from the most recent balance sheet that Vinvest Capital Holdings Berhad had liabilities of RM90.5m falling due within a year, and liabilities of RM26.3m due beyond that. Offsetting these obligations, it had cash of RM26.9m as well as receivables valued at RM176.2m due within 12 months. So it can boast RM86.3m more liquid assets than total liabilities.

This excess liquidity is a great indication that Vinvest Capital Holdings Berhad's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. 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 made a loss at the EBIT level, and saw its revenue drop to RM70m, which is a fall of 12%. That's not what we would hope to see.

Caveat Emptor

Not only did Vinvest Capital Holdings Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping RM115m. Having said that, the balance sheet has plenty of liquid assets for now. That should give the business time to grow its cashflow. The company is risky because it will grow into the future to get to profitability and free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for Vinvest Capital Holdings Berhad (3 don't sit too well with us) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com