Does Spring Art Holdings Berhad (KLSE:SPRING) 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.' 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 Spring Art Holdings Berhad (KLSE:SPRING) does use debt in its business. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 Spring Art Holdings Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that Spring Art Holdings Berhad had RM8.82m of debt in September 2025, down from RM14.1m, one year before. But on the other hand it also has RM13.7m in cash, leading to a RM4.92m net cash position.

A Look At Spring Art Holdings Berhad's Liabilities

We can see from the most recent balance sheet that Spring Art Holdings Berhad had liabilities of RM5.75m falling due within a year, and liabilities of RM12.1m due beyond that. Offsetting these obligations, it had cash of RM13.7m as well as receivables valued at RM4.22m due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Spring Art Holdings Berhad's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the RM49.9m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Spring Art Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Spring Art Holdings Berhad

Shareholders should be aware that Spring Art Holdings Berhad's EBIT was down 99% last year. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. When analysing debt levels, the balance sheet is the obvious place to start. But it is Spring Art 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 company can only pay off debt with cold hard cash, not accounting profits. Spring Art 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. Over the last three years, Spring Art Holdings Berhad reported free cash flow worth 18% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Spring Art Holdings Berhad has net cash of RM4.92m, as well as more liquid assets than liabilities. So although we see some areas for improvement, we're not too worried about Spring Art Holdings Berhad's balance sheet. 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. For example, we've discovered 3 warning signs for Spring Art Holdings Berhad that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.