These 4 Measures Indicate That Eco-Shop Marketing Berhad (KLSE:ECOSHOP) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Eco-Shop Marketing Berhad (KLSE:ECOSHOP) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Eco-Shop Marketing Berhad's Net Debt?

As you can see below, Eco-Shop Marketing Berhad had RM123.9m of debt at May 2025, down from RM129.2m a year prior. However, it does have RM372.6m in cash offsetting this, leading to net cash of RM248.7m.

How Healthy Is Eco-Shop Marketing Berhad's Balance Sheet?

The latest balance sheet data shows that Eco-Shop Marketing Berhad had liabilities of RM498.2m due within a year, and liabilities of RM365.8m falling due after that. On the other hand, it had cash of RM372.6m and RM8.48m worth of receivables due within a year. So its liabilities total RM482.9m more than the combination of its cash and short-term receivables.

Of course, Eco-Shop Marketing Berhad has a market capitalization of RM9.14b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Eco-Shop Marketing Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Eco-Shop Marketing Berhad

Also good is that Eco-Shop Marketing Berhad grew its EBIT at 15% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Eco-Shop Marketing Berhad can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Eco-Shop Marketing 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. During the last three years, Eco-Shop Marketing Berhad produced sturdy free cash flow equating to 52% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Eco-Shop Marketing Berhad has RM248.7m in net cash. And we liked the look of last year's 15% year-on-year EBIT growth. So is Eco-Shop Marketing Berhad's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Eco-Shop Marketing Berhad's earnings per share history for free.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.