Is Komarkcorp Berhad (KLSE:KOMARK) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Komarkcorp Berhad (KLSE:KOMARK) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Komarkcorp Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Komarkcorp Berhad had RM11.9m of debt, an increase on RM7.96m, over one year. However, it does have RM24.3m in cash offsetting this, leading to net cash of RM12.4m.

How Healthy Is Komarkcorp Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Komarkcorp Berhad had liabilities of RM19.0m due within 12 months and liabilities of RM8.59m due beyond that. Offsetting this, it had RM24.3m in cash and RM9.99m in receivables that were due within 12 months. So it actually has RM6.73m more liquid assets than total liabilities.

This luscious liquidity implies that Komarkcorp Berhad's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Komarkcorp Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Komarkcorp 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.

View our latest analysis for Komarkcorp Berhad

Over 12 months, Komarkcorp Berhad made a loss at the EBIT level, and saw its revenue drop to RM14m, which is a fall of 52%. To be frank that doesn't bode well.

So How Risky Is Komarkcorp Berhad?

While Komarkcorp Berhad lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM1.8m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Komarkcorp Berhad is showing 4 warning signs in our investment analysis , and 3 of those don't sit too well with us...

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.