Is Fraser & Neave Holdings Bhd (KLSE:F&N) 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.' 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. As with many other companies Fraser & Neave Holdings Bhd (KLSE:F&N) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Fraser & Neave Holdings Bhd Carry?

As you can see below, Fraser & Neave Holdings Bhd had RM592.0m of debt at September 2025, down from RM706.0m a year prior. But on the other hand it also has RM625.9m in cash, leading to a RM33.9m net cash position.

How Healthy Is Fraser & Neave Holdings Bhd's Balance Sheet?

We can see from the most recent balance sheet that Fraser & Neave Holdings Bhd had liabilities of RM1.17b falling due within a year, and liabilities of RM561.9m due beyond that. On the other hand, it had cash of RM625.9m and RM899.0m worth of receivables due within a year. So it has liabilities totalling RM209.8m more than its cash and near-term receivables, combined.

This state of affairs indicates that Fraser & Neave Holdings Bhd's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the RM12.1b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Fraser & Neave Holdings Bhd boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Fraser & Neave Holdings Bhd

Fortunately, Fraser & Neave Holdings Bhd grew its EBIT by 5.1% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Fraser & Neave Holdings Bhd's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Fraser & Neave Holdings Bhd 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, Fraser & Neave Holdings Bhd produced sturdy free cash flow equating to 64% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about Fraser & Neave Holdings Bhd's liabilities, but we can be reassured by the fact it has has net cash of RM33.9m. So we don't think Fraser & Neave Holdings Bhd's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Fraser & Neave Holdings Bhd's earnings per share history for free.

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.