Here's Why Asia Poly Holdings Berhad (KLSE:ASIAPLY) Can Afford Some 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. Importantly, Asia Poly Holdings Berhad (KLSE:ASIAPLY) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Asia Poly Holdings Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that Asia Poly Holdings Berhad had debt of RM58.2m at the end of March 2025, a reduction from RM68.3m over a year. However, it does have RM8.36m in cash offsetting this, leading to net debt of about RM49.9m.

How Healthy Is Asia Poly Holdings Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Asia Poly Holdings Berhad had liabilities of RM47.6m due within 12 months and liabilities of RM29.7m due beyond that. On the other hand, it had cash of RM8.36m and RM19.5m worth of receivables due within a year. So it has liabilities totalling RM49.5m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Asia Poly Holdings Berhad is worth RM152.9m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Asia Poly Holdings 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.

See our latest analysis for Asia Poly Holdings Berhad

Over 12 months, Asia Poly Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM107m, which is a fall of 6.9%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Asia Poly Holdings Berhad produced an earnings before interest and tax (EBIT) loss. Indeed, it lost RM4.7m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of RM10.0m. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Asia Poly Holdings Berhad (including 1 which doesn't sit too well with us) .

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.