Is Cabnet Holdings Berhad (KLSE:CABNET) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 Cabnet Holdings Berhad (KLSE:CABNET) makes use of debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Cabnet Holdings Berhad Carry?

The image below, which you can click on for greater detail, shows that at May 2025 Cabnet Holdings Berhad had debt of RM18.9m, up from RM15.1m in one year. However, it does have RM22.9m in cash offsetting this, leading to net cash of RM3.96m.

How Healthy Is Cabnet Holdings Berhad's Balance Sheet?

According to the last reported balance sheet, Cabnet Holdings Berhad had liabilities of RM73.1m due within 12 months, and liabilities of RM10.4m due beyond 12 months. On the other hand, it had cash of RM22.9m and RM74.2m worth of receivables due within a year. So it actually has RM13.7m more liquid assets than total liabilities.

This surplus suggests that Cabnet Holdings Berhad is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Cabnet Holdings Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Cabnet Holdings Berhad

Importantly, Cabnet Holdings Berhad's EBIT fell a jaw-dropping 56% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Cabnet Holdings Berhad will need earnings to service that debt. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Cabnet Holdings Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Cabnet Holdings Berhad's free cash flow amounted to 39% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Cabnet Holdings Berhad has RM3.96m in net cash and a decent-looking balance sheet. So we are not troubled with Cabnet Holdings Berhad's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Cabnet Holdings Berhad , and understanding them should be part of your investment process.

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.