Techbase Industries Berhad (KLSE:TECHBASE) 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.' 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 note that Techbase Industries Berhad (KLSE:TECHBASE) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Techbase Industries Berhad Carry?

As you can see below, Techbase Industries Berhad had RM41.6m of debt at July 2025, down from RM48.6m a year prior. But it also has RM162.9m in cash to offset that, meaning it has RM121.3m net cash.

How Healthy Is Techbase Industries Berhad's Balance Sheet?

According to the last reported balance sheet, Techbase Industries Berhad had liabilities of RM43.6m due within 12 months, and liabilities of RM22.2m due beyond 12 months. Offsetting these obligations, it had cash of RM162.9m as well as receivables valued at RM52.5m due within 12 months. So it can boast RM149.6m more liquid assets than total liabilities.

This surplus strongly suggests that Techbase Industries Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Techbase Industries Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Techbase Industries Berhad

Notably, Techbase Industries Berhad made a loss at the EBIT level, last year, but improved that to positive EBIT of RM15m in the last twelve months. 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 Techbase Industries 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. Techbase Industries 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. During the last year, Techbase Industries Berhad burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, the bottom line is that Techbase Industries Berhad has net cash of RM121.3m and plenty of liquid assets. So we don't have any problem with Techbase Industries Berhad's use of debt. 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. For example - Techbase Industries Berhad has 3 warning signs we think you should be aware of.

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.