Is Lien Hoe Corporation Berhad (KLSE:LIENHOE) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Lien Hoe Corporation Berhad (KLSE:LIENHOE) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Lien Hoe Corporation Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that Lien Hoe Corporation Berhad had RM26.6m of debt in September 2025, down from RM30.5m, one year before. However, it does have RM1.52m in cash offsetting this, leading to net debt of about RM25.0m.

How Healthy Is Lien Hoe Corporation Berhad's Balance Sheet?

We can see from the most recent balance sheet that Lien Hoe Corporation Berhad had liabilities of RM21.6m falling due within a year, and liabilities of RM68.8m due beyond that. Offsetting this, it had RM1.52m in cash and RM959.0k in receivables that were due within 12 months. So it has liabilities totalling RM87.9m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's RM69.8m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Lien Hoe Corporation 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 Lien Hoe Corporation Berhad

Over 12 months, Lien Hoe Corporation Berhad made a loss at the EBIT level, and saw its revenue drop to RM27m, which is a fall of 7.0%. That's not what we would hope to see.

Caveat Emptor

Importantly, Lien Hoe Corporation Berhad had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at RM4.7m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of RM8.1m. And until that time we think this is a risky stock. 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 instance, we've identified 2 warning signs for Lien Hoe Corporation Berhad (1 is a bit unpleasant) you should be aware of.

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.