Is Unique Fire Holdings Berhad (KLSE:UNIQUE) Using Too Much Debt?

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 can see that Unique Fire Holdings Berhad (KLSE:UNIQUE) does use debt in its business. But should shareholders be worried about its use of debt?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Unique Fire Holdings Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that Unique Fire Holdings Berhad had debt of RM7.66m at the end of June 2025, a reduction from RM9.03m over a year. But on the other hand it also has RM15.4m in cash, leading to a RM7.72m net cash position.

How Healthy Is Unique Fire Holdings Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Unique Fire Holdings Berhad had liabilities of RM11.3m due within 12 months and liabilities of RM7.13m due beyond that. Offsetting this, it had RM15.4m in cash and RM31.1m in receivables that were due within 12 months. So it can boast RM28.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Unique Fire Holdings Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Unique Fire Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Unique Fire Holdings Berhad

Also good is that Unique Fire Holdings Berhad grew its EBIT at 18% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But it is Unique Fire 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Unique Fire 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. During the last three years, Unique Fire Holdings Berhad produced sturdy free cash flow equating to 51% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Unique Fire Holdings Berhad has net cash of RM7.72m, as well as more liquid assets than liabilities. And we liked the look of last year's 18% year-on-year EBIT growth. So we don't think Unique Fire Holdings Berhad's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Unique Fire Holdings Berhad is showing 2 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.