Here's Why Paragon Union Berhad (KLSE:PARAGON) Can Afford Some Debt

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.' 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. As with many other companies Paragon Union Berhad (KLSE:PARAGON) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Paragon Union Berhad Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Paragon Union Berhad had debt of RM14.3m, up from RM10.9m in one year. However, it does have RM7.54m in cash offsetting this, leading to net debt of about RM6.74m.

How Healthy Is Paragon Union Berhad's Balance Sheet?

According to the last reported balance sheet, Paragon Union Berhad had liabilities of RM27.7m due within 12 months, and liabilities of RM26.5m due beyond 12 months. Offsetting this, it had RM7.54m in cash and RM13.8m in receivables that were due within 12 months. So it has liabilities totalling RM32.8m more than its cash and near-term receivables, combined.

Since publicly traded Paragon Union Berhad shares are worth a total of RM318.5m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 Paragon Union 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.

See our latest analysis for Paragon Union Berhad

Over 12 months, Paragon Union Berhad made a loss at the EBIT level, and saw its revenue drop to RM74m, which is a fall of 30%. To be frank that doesn't bode well.

Caveat Emptor

While Paragon Union Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost RM1.6m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of RM3.8m. So we do think this stock is quite risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Paragon Union Berhad is showing 2 warning signs in our investment analysis , 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.