KUB Malaysia Berhad (KLSE:KUB) Could Easily Take On More Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that KUB Malaysia Berhad (KLSE:KUB) 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 Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does KUB Malaysia Berhad Carry?

The image below, which you can click on for greater detail, shows that at June 2025 KUB Malaysia Berhad had debt of RM74.3m, up from RM54.6m in one year. However, it does have RM521.9m in cash offsetting this, leading to net cash of RM447.6m.

How Healthy Is KUB Malaysia Berhad's Balance Sheet?

We can see from the most recent balance sheet that KUB Malaysia Berhad had liabilities of RM147.4m falling due within a year, and liabilities of RM69.6m due beyond that. Offsetting these obligations, it had cash of RM521.9m as well as receivables valued at RM80.5m due within 12 months. So it actually has RM385.3m more liquid assets than total liabilities.

This excess liquidity is a great indication that KUB Malaysia 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. Simply put, the fact that KUB Malaysia Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for KUB Malaysia Berhad

Also positive, KUB Malaysia Berhad grew its EBIT by 30% in the last year, and that should make it easier to pay down debt, going forward. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since KUB Malaysia 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. KUB Malaysia 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, KUB Malaysia Berhad generated free cash flow amounting to a very robust 86% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that KUB Malaysia Berhad has net cash of RM447.6m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of RM23m, being 86% of its EBIT. The bottom line is that KUB Malaysia Berhad's use of debt is absolutely fine. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for KUB Malaysia Berhad (of which 1 is potentially serious!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.