Is MClean Technologies Berhad (KLSE:MCLEAN) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, MClean Technologies Berhad (KLSE:MCLEAN) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for MClean Technologies Berhad

What Is MClean Technologies Berhad's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 MClean Technologies Berhad had debt of RM7.28m, up from RM5.25m in one year. However, it does have RM4.23m in cash offsetting this, leading to net debt of about RM3.05m.

How Strong Is MClean Technologies Berhad's Balance Sheet?

The latest balance sheet data shows that MClean Technologies Berhad had liabilities of RM17.1m due within a year, and liabilities of RM4.50m falling due after that. Offsetting this, it had RM4.23m in cash and RM17.9m in receivables that were due within 12 months. So it can boast RM447.0k more liquid assets than total liabilities.

This state of affairs indicates that MClean Technologies Berhad's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the RM57.2m company is struggling for cash, we still think it's worth monitoring its balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since MClean Technologies 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.

In the last year MClean Technologies Berhad's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months MClean Technologies Berhad produced an earnings before interest and tax (EBIT) loss. Indeed, it lost RM3.7m at the EBIT level. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But a profit would do more to inspire us to research the business more closely. So it seems too risky for our taste. 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. To that end, you should learn about the 3 warning signs we've spotted with MClean Technologies Berhad (including 2 which are concerning) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.