Esthetics International Group Berhad (KLSE:EIG) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Esthetics International Group Berhad (KLSE:EIG) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. 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 Esthetics International Group Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that Esthetics International Group Berhad had RM16.5m of debt in June 2025, down from RM18.9m, one year before. But it also has RM24.2m in cash to offset that, meaning it has RM7.74m net cash.

A Look At Esthetics International Group Berhad's Liabilities

According to the last reported balance sheet, Esthetics International Group Berhad had liabilities of RM77.9m due within 12 months, and liabilities of RM23.5m due beyond 12 months. Offsetting these obligations, it had cash of RM24.2m as well as receivables valued at RM25.4m due within 12 months. So its liabilities total RM51.8m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of RM60.5m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. While it does have liabilities worth noting, Esthetics International Group Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Esthetics International Group 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.

Check out our latest analysis for Esthetics International Group Berhad

Over 12 months, Esthetics International Group Berhad reported revenue of RM188m, which is a gain of 3.0%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Esthetics International Group Berhad?

While Esthetics International Group Berhad lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM23m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with Esthetics International Group Berhad (including 2 which are concerning) .

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.