Is Euro Holdings Berhad (KLSE:EURO) 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 Euro Holdings Berhad (KLSE:EURO) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Euro Holdings Berhad

How Much Debt Does Euro Holdings Berhad Carry?

The image below, which you can click on for greater detail, shows that Euro Holdings Berhad had debt of RM7.64m at the end of June 2024, a reduction from RM23.7m over a year. On the flip side, it has RM632.0k in cash leading to net debt of about RM7.01m.

How Healthy Is Euro Holdings Berhad's Balance Sheet?

We can see from the most recent balance sheet that Euro Holdings Berhad had liabilities of RM37.6m falling due within a year, and liabilities of RM9.21m due beyond that. Offsetting these obligations, it had cash of RM632.0k as well as receivables valued at RM4.21m due within 12 months. So it has liabilities totalling RM42.0m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Euro Holdings Berhad has a market capitalization of RM73.0m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Euro 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, Euro Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM79m, which is a fall of 47%. To be frank that doesn't bode well.

Caveat Emptor

While Euro Holdings Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping RM16m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through RM5.0m of cash over the last year. So in short it's a really risky stock. 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. For example, we've discovered 5 warning signs for Euro Holdings Berhad (2 shouldn't be ignored!) that you should be aware of before investing here.

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.