Is Warisan TC Holdings Berhad (KLSE:WARISAN) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. As with many other companies Warisan TC Holdings Berhad (KLSE:WARISAN) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Warisan TC Holdings Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Warisan TC Holdings Berhad had RM296.3m of debt, an increase on RM276.6m, over one year. On the flip side, it has RM54.5m in cash leading to net debt of about RM241.7m.

A Look At Warisan TC Holdings Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that Warisan TC Holdings Berhad had liabilities of RM540.2m due within 12 months and liabilities of RM76.6m due beyond that. Offsetting these obligations, it had cash of RM54.5m as well as receivables valued at RM173.4m due within 12 months. So its liabilities total RM388.9m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the RM74.9m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Warisan TC Holdings Berhad would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is Warisan TC Holdings Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for Warisan TC Holdings Berhad

Over 12 months, Warisan TC Holdings Berhad reported revenue of RM497m, which is a gain of 9.3%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Warisan TC Holdings Berhad had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at RM3.8m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it lost RM21m in just last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is quite risky. We'd prefer to pass. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Warisan TC Holdings Berhad (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

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.