Is SMRT Holdings Berhad (KLSE:SMRT) 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. We note that SMRT Holdings Berhad (KLSE:SMRT) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is SMRT Holdings Berhad's Net Debt?

As you can see below, SMRT Holdings Berhad had RM9.60m of debt at September 2025, down from RM10.4m a year prior. But on the other hand it also has RM43.6m in cash, leading to a RM34.0m net cash position.

A Look At SMRT Holdings Berhad's Liabilities

We can see from the most recent balance sheet that SMRT Holdings Berhad had liabilities of RM7.71m falling due within a year, and liabilities of RM8.93m due beyond that. On the other hand, it had cash of RM43.6m and RM49.9m worth of receivables due within a year. So it actually has RM76.9m more liquid assets than total liabilities.

This surplus liquidity suggests that SMRT Holdings Berhad's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, SMRT Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for SMRT Holdings Berhad

SMRT Holdings Berhad's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine SMRT Holdings Berhad's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While SMRT Holdings 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. Over the most recent three years, SMRT Holdings Berhad recorded free cash flow worth 69% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case SMRT Holdings Berhad has RM34.0m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of RM22m, being 69% of its EBIT. So we don't think SMRT Holdings Berhad's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for SMRT Holdings Berhad you should be aware of.

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.