We Think Fraser & Neave Holdings Bhd (KLSE:F&N) Can Manage Its Debt With Ease

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Fraser & Neave Holdings Bhd (KLSE:F&N) makes use of debt. But the more important question is: how much risk is that debt creating?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Fraser & Neave Holdings Bhd Carry?

As you can see below, Fraser & Neave Holdings Bhd had RM704.0m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has RM976.1m in cash to offset that, meaning it has RM272.1m net cash.

A Look At Fraser & Neave Holdings Bhd's Liabilities

We can see from the most recent balance sheet that Fraser & Neave Holdings Bhd had liabilities of RM1.46b falling due within a year, and liabilities of RM537.0m due beyond that. Offsetting these obligations, it had cash of RM976.1m as well as receivables valued at RM1.06b due within 12 months. So it actually has RM46.5m more liquid assets than total liabilities.

Having regard to Fraser & Neave Holdings Bhd's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the RM10.6b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Fraser & Neave Holdings Bhd boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Fraser & Neave Holdings Bhd

Also good is that Fraser & Neave Holdings Bhd grew its EBIT at 17% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Fraser & Neave Holdings Bhd can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. 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 73% of its EBIT, about what we'd expect. 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 Fraser & Neave Holdings Bhd has RM272.1m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 73% of that EBIT to free cash flow, bringing in RM197m. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.