These 4 Measures Indicate That MClean Technologies Berhad (KLSE:MCLEAN) Is Using Debt Reasonably Well

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 MClean Technologies Berhad (KLSE:MCLEAN) makes use of debt. But is this debt a concern to shareholders?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is MClean Technologies Berhad's Net Debt?

As you can see below, MClean Technologies Berhad had RM7.24m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has RM12.9m in cash to offset that, meaning it has RM5.68m net cash.

How Strong Is MClean Technologies Berhad's Balance Sheet?

The latest balance sheet data shows that MClean Technologies Berhad had liabilities of RM20.6m due within a year, and liabilities of RM6.11m falling due after that. Offsetting these obligations, it had cash of RM12.9m as well as receivables valued at RM29.8m due within 12 months. So it actually has RM15.9m more liquid assets than total liabilities.

This surplus suggests that MClean Technologies Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that MClean Technologies Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for MClean Technologies Berhad

It was also good to see that despite losing money on the EBIT line last year, MClean Technologies Berhad turned things around in the last 12 months, delivering and EBIT of RM6.7m. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine MClean Technologies Berhad's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While MClean Technologies Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent year, MClean Technologies Berhad recorded free cash flow worth 59% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that MClean Technologies Berhad has net cash of RM5.68m, as well as more liquid assets than liabilities. So we don't think MClean Technologies Berhad's use of debt is risky. 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. Be aware that MClean Technologies Berhad is showing 4 warning signs in our investment analysis , you should know about...

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.