Does Ni Hsin Group Berhad (KLSE:NIHSIN) Have A Healthy Balance Sheet?

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.' 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 Ni Hsin Group Berhad (KLSE:NIHSIN) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Ni Hsin Group Berhad

What Is Ni Hsin Group Berhad's Debt?

The chart below, which you can click on for greater detail, shows that Ni Hsin Group Berhad had RM7.38m in debt in March 2022; about the same as the year before. But on the other hand it also has RM27.1m in cash, leading to a RM19.7m net cash position.

How Strong Is Ni Hsin Group Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ni Hsin Group Berhad had liabilities of RM5.90m due within 12 months and liabilities of RM11.1m due beyond that. Offsetting these obligations, it had cash of RM27.1m as well as receivables valued at RM5.86m due within 12 months. So it can boast RM15.9m more liquid assets than total liabilities.

This luscious liquidity implies that Ni Hsin Group Berhad's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Ni Hsin Group Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Ni Hsin Group 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.

In the last year Ni Hsin Group Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to RM32m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Ni Hsin Group Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Ni Hsin Group Berhad had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through RM6.2m of cash and made a loss of RM5.6m. With only RM19.7m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Ni Hsin Group Berhad (of which 1 is a bit unpleasant!) you should know about.

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.