Is Magma Group Berhad (KLSE:MAGMA) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Magma Group Berhad (KLSE:MAGMA) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

What Is Magma Group Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Magma Group Berhad had debt of RM98.9m, up from RM74.2m in one year. On the flip side, it has RM23.1m in cash leading to net debt of about RM75.9m.

How Healthy Is Magma Group Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Magma Group Berhad had liabilities of RM38.6m due within 12 months and liabilities of RM115.9m due beyond that. On the other hand, it had cash of RM23.1m and RM19.5m worth of receivables due within a year. So it has liabilities totalling RM112.0m more than its cash and near-term receivables, combined.

Of course, Magma Group Berhad has a market capitalization of RM697.7m, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is Magma Group Berhad's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Magma Group Berhad

Over 12 months, Magma Group Berhad reported revenue of RM14m, which is a gain of 2.3%, 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.

Caveat Emptor

Importantly, Magma Group Berhad had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost RM40m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through RM65m of cash over the last year. So in short it's a really risky stock. 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. We've identified 3 warning signs with Magma Group Berhad (at least 2 which can't be ignored) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.