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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Vinvest Capital Holdings Berhad (KLSE:VINVEST) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Vinvest Capital Holdings Berhad

What Is Vinvest Capital Holdings Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Vinvest Capital Holdings Berhad had RM33.2m of debt in June 2024, down from RM89.9m, one year before. However, because it has a cash reserve of RM26.7m, its net debt is less, at about RM6.56m.

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

According to the last reported balance sheet, Vinvest Capital Holdings Berhad had liabilities of RM85.0m due within 12 months, and liabilities of RM24.4m due beyond 12 months. On the other hand, it had cash of RM26.7m and RM169.4m worth of receivables due within a year. So it actually has RM86.6m 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). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Vinvest Capital Holdings Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Vinvest Capital Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM60m, which is a fall of 26%. That makes us nervous, to say the least.

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 RM120m. Having said that, the balance sheet has plenty of liquid assets for now. That will give the company some time and space to grow and develop its business as need be. While the stock is probably a bit risky, there may be an opportunity if the business itself improves, allowing the company to stage a recovery. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Vinvest Capital Holdings Berhad you should be aware of, and 3 of them are a bit concerning.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.