Is Ni Hsin Group Berhad (KLSE:NIHSIN) 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Ni Hsin Group Berhad (KLSE:NIHSIN) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Ni Hsin Group Berhad

What Is Ni Hsin Group Berhad's Net Debt?

As you can see below, Ni Hsin Group Berhad had RM7.17m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds RM13.2m in cash, so it actually has RM6.03m net cash.

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

The latest balance sheet data shows that Ni Hsin Group Berhad had liabilities of RM6.83m due within a year, and liabilities of RM11.8m falling due after that. Offsetting this, it had RM13.2m in cash and RM6.31m in receivables that were due within 12 months. So it actually has RM871.0k more liquid assets than total liabilities.

This state of affairs indicates that Ni Hsin Group 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 RM60.2m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Ni Hsin Group 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 Ni Hsin Group Berhad will need earnings to service that debt. 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.

Over 12 months, Ni Hsin Group Berhad made a loss at the EBIT level, and saw its revenue drop to RM29m, which is a fall of 10%. We would much prefer see growth.

So How Risky Is Ni Hsin Group Berhad?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Ni Hsin Group Berhad had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through RM4.5m of cash and made a loss of RM7.5m. But the saving grace is the RM6.03m on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. 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. Case in point: We've spotted 3 warning signs for Ni Hsin Group Berhad you should be aware of, and 1 of them makes us a bit uncomfortable.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.