Is Ann Joo Resources Berhad (KLSE:ANNJOO) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Ann Joo Resources Berhad (KLSE:ANNJOO) does use debt in its business. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Ann Joo Resources Berhad's Debt?

The image below, which you can click on for greater detail, shows that Ann Joo Resources Berhad had debt of RM1.35b at the end of March 2025, a reduction from RM1.48b over a year. However, because it has a cash reserve of RM151.1m, its net debt is less, at about RM1.20b.

A Look At Ann Joo Resources Berhad's Liabilities

The latest balance sheet data shows that Ann Joo Resources Berhad had liabilities of RM1.83b due within a year, and liabilities of RM218.4m falling due after that. Offsetting this, it had RM151.1m in cash and RM603.9m in receivables that were due within 12 months. So it has liabilities totalling RM1.30b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the RM512.3m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Ann Joo Resources Berhad would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Ann Joo Resources 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.

View our latest analysis for Ann Joo Resources Berhad

In the last year Ann Joo Resources Berhad had a loss before interest and tax, and actually shrunk its revenue by 3.1%, to RM2.4b. We would much prefer see growth.

Caveat Emptor

Importantly, Ann Joo Resources Berhad had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable RM296m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely since it is low on liquid assets, and made a loss of RM353m in the last year. So while it's not wise to assume the company will fail, we do think it's risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Ann Joo Resources Berhad (1 is significant!) that you should be aware of before investing here.

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.