Is Supreme Consolidated Resources Berhad (KLSE:SUPREME) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Supreme Consolidated Resources Berhad (KLSE:SUPREME) does carry debt. But is this debt a concern to shareholders?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Supreme Consolidated Resources Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that Supreme Consolidated Resources Berhad had RM36.7m of debt in June 2025, down from RM42.2m, one year before. However, it does have RM43.7m in cash offsetting this, leading to net cash of RM7.02m.

How Strong Is Supreme Consolidated Resources Berhad's Balance Sheet?

According to the last reported balance sheet, Supreme Consolidated Resources Berhad had liabilities of RM38.9m due within 12 months, and liabilities of RM3.26m due beyond 12 months. Offsetting this, it had RM43.7m in cash and RM31.3m in receivables that were due within 12 months. So it can boast RM32.9m more liquid assets than total liabilities.

This excess liquidity is a great indication that Supreme Consolidated Resources Berhad's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Supreme Consolidated Resources Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Supreme Consolidated Resources Berhad

While Supreme Consolidated Resources Berhad doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Supreme Consolidated Resources 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. Supreme Consolidated Resources 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 three years, Supreme Consolidated Resources Berhad produced sturdy free cash flow equating to 69% 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 investigate a company's debt, in this case Supreme Consolidated Resources Berhad has RM7.02m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 69% of that EBIT to free cash flow, bringing in RM11m. So we don't think Supreme Consolidated Resources Berhad's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Supreme Consolidated Resources Berhad you should know about.

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.