Oceancash Pacific Berhad (KLSE:OCNCASH) Seems To Use Debt Quite Sensibly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Oceancash Pacific Berhad (KLSE:OCNCASH) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Oceancash Pacific Berhad's Debt?

As you can see below, Oceancash Pacific Berhad had RM7.55m of debt at March 2025, down from RM10.4m a year prior. But it also has RM17.6m in cash to offset that, meaning it has RM10.1m net cash.

How Strong Is Oceancash Pacific Berhad's Balance Sheet?

According to the last reported balance sheet, Oceancash Pacific Berhad had liabilities of RM12.0m due within 12 months, and liabilities of RM10.9m due beyond 12 months. Offsetting this, it had RM17.6m in cash and RM20.2m in receivables that were due within 12 months. So it can boast RM14.8m more liquid assets than total liabilities.

This surplus suggests that Oceancash Pacific Berhad is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Oceancash Pacific Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Oceancash Pacific Berhad

Importantly, Oceancash Pacific Berhad's EBIT fell a jaw-dropping 76% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. 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 Oceancash Pacific 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Oceancash Pacific 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. In the last three years, Oceancash Pacific Berhad's free cash flow amounted to 29% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Oceancash Pacific Berhad has RM10.1m in net cash and a decent-looking balance sheet. So we don't have any problem with Oceancash Pacific Berhad's use of debt. 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. We've identified 4 warning signs with Oceancash Pacific Berhad (at least 3 which are a bit concerning) , and understanding them should be part of your investment process.

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.