MHC Plantations Bhd (KLSE:MHC) Could Easily Take On More Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies MHC Plantations Bhd. (KLSE:MHC) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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 MHC Plantations Bhd Carry?

The image below, which you can click on for greater detail, shows that MHC Plantations Bhd had debt of RM14.8m at the end of June 2025, a reduction from RM22.3m over a year. But on the other hand it also has RM131.7m in cash, leading to a RM116.9m net cash position.

A Look At MHC Plantations Bhd's Liabilities

Zooming in on the latest balance sheet data, we can see that MHC Plantations Bhd had liabilities of RM71.1m due within 12 months and liabilities of RM68.9m due beyond that. Offsetting these obligations, it had cash of RM131.7m as well as receivables valued at RM40.0m due within 12 months. So it actually has RM31.7m more liquid assets than total liabilities.

This short term liquidity is a sign that MHC Plantations Bhd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, MHC Plantations Bhd boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for MHC Plantations Bhd

In addition to that, we're happy to report that MHC Plantations Bhd has boosted its EBIT by 59%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since MHC Plantations Bhd will need earnings to service that debt. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. MHC Plantations 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, MHC Plantations Bhd 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 it is always sensible to investigate a company's debt, in this case MHC Plantations Bhd has RM116.9m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of RM72m, being 86% of its EBIT. So is MHC Plantations Bhd's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with MHC Plantations Bhd , 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.